realestate

The growing might of the Bank of Mum and Dad


What does the chart show?
It shows how likely you are to own a house, by age, depending on how much property wealth your parents had when you were young.

The bottom line shows those prospective homeowners whose parents did not have any property wealth at all. The other three lines show those whose parents fit into each of the other three quartiles of wealth distribution.

Unsurprisingly, those with the richest parents are the most likely to own a house by the age of 30. Roughly a third of people in this category were homeowners themselves by the time their 20s were over.

They are followed not far after by those in the second two quartiles who both had about a 28 per cent chance of owning a house in their 30s and then much further behind by those whose parents did not have any property wealth at all, who had just a 13 per cent chance of becoming a homeowner.

Why are those with richer parents more likely to own a house themselves?
Well, there is the obvious: richer parents can afford to lend or give their offspring the money for a deposit for a mortgage. Even if they don’t have money in the bank, downsizing or releasing equity are just two methods to turn one generation’s property wealth into the next.

Since the financial crisis, lenders have tightened up their criteria, meaning a bigger deposit is needed to get a mortgage and on to the housing ladder.

The Resolution Foundation think-tank, which provided the statistics, estimated it would take 18 years for the average person aged between 27 and 30 to save a deposit on their own. The involvement of the Bank of Mum and Dad (Bomad) can considerably speed up that process.

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There are other factors to consider too: Britain is not a classless society, those with richer parents are more likely to be better educated and to have a higher income themselves when they get older.

The Resolution Foundation calculated that the monthly wage of those whose parents were in the top quartile of wealth was about £600 higher than those without property wealth. The top quartile were also more likely to have a degree, meaning they would be more likely to have a well-paid job where they could afford higher monthly mortgage repayments.

So how much does the Bank of Mum and Dad matter?
The Resolution Foundation also did some pretty sophisticated number crunching to assess the impact of how rich your parents are versus how much you earn.

Controlling for the different levels of earnings and education, they found that a £10,000 increase in parental property wealth would lead to an additional 1.4 per cent chance of you becoming a homeowner in any given year.

In other words, someone whose parents had £110,000 worth of housing equity would be 14 percentage points more likely to buy a house than someone whose parents had £10,000 worth of housing equity — even if both would-be buyers were on the same salary.

However, the foundation added that these calculations do not take into account the impact of having wealthy parents on your earnings.

Is Bomad becoming more important?
All young people are less likely to own a home than they used to be.

At the turn of the millennium about 40 per cent of those whose parents were homeowners had become homeowners themselves by age 30, now that is down to 25 per cent. Those whose parents do not own property have fallen from 19 per cent to 9 per cent.

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After controlling for different levels of earnings whether your parents own their own home or not has become more important.

In any given year between 2013 and 2017, those with parental property wealth were 80 per cent more likely to become homeowners than those whose parents did not own their own home. Between 2003 and 2007 the difference was just 20 per cent.



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