The banking industry has, for the first time, published the significant sums that mortgage borrowers are forced to tap from their families to have any chance of getting a home of their own.
It was known that first-time borrowers have needed to tap the so-called Bank of Mum and Dad to have any chance of saving for a deposit and securing a mortgage. The new figures show that first-time buyers required gifts from family members that amounted to over €149m in the first half of the year alone.
Significantly, a total of almost €60.5m was gifted to mover purchasers, borrowers who needed a new mortgage because they were moving on from their first home.
No one should play down the significance of the figures for another generation of Irish house buyers and renters as house prices continue to climb in Ireland. Irish house prices are already among the highest in Europe.
The figures suggest the crisis, for an already dysfunctional housing market, is deepening for all types of mortgage borrowers and for renters.
The lenders have had the gifted figures to hand for many years.
Borrowers seeking a mortgage loan have to declare how much of their funds are coming from gifts because banks have to be reassured that that have security over the property.
According to to the Banking & Payments Federation Ireland (BPFI), for the first half of the year:
- The median deposit required by a first-time buyer was over €52,000, and the median deposit required for a so-called mover-purchaser was €135,000;
- Almost 42% of first-time buyers used gifts to help fund their deposits, and almost 25% of mover purchasers tapped such gifts;
- The main source of deposits was, however, from savings, with 96% of first-time buyers using savings to fund their deposits for mortgage loans;
- The value of all gifts came to €210m in the first half of the year. That includes over €149m for first-time buyers and almost €60.5m for mover purchasers;
- At €795m, own savings were over four times that of gifts;
- Inheritances and the proceeds from a previous property were significant sources of deposits.
BPFI chief executive Brian Hayes said the figures suggest rising house prices are leading to increased amounts required for deposits.
“House price growth has accelerated in recent months mainly due to the imbalance between supply and demand, where supply was seriously affected due to the pandemic,” Mr Hayes said.
Experts said house prices are in a race against time. Michael Dowling, a senior mortgage broker who has long highlighted the amounts being borrowed from the Bank of Mum and Dad, said it was significant that mover purchases also required family gifts to secure a mortgage loan:
“While we are seeing activity in the housing market, there is no endless supply of savings out there. It is clear that more people are relying on their parents to get mortgage loans,” Mr Dowling said.
He said in the “race against supply for supply to catch up”, there was no doubt that some of the Covid savings were helping to fuel house prices.
Kieran McQuinn, professor at the Economic and Social Research Institute, said the gifting figures put the spotlight on how some of the additional savings of around €15bn built up during the pandemic were finding their way into house prices.
House price inflation had shot to 12.4% during the pandemic, “and you have additional risks of these excess savings”, said Prof McQuinn.
The key point is that the macro prudential, or mortgage rules which are designed to keep house prices in check, must remain in place, Prof McQuinn said. On the rental side, the danger is we will see further increases in rent, he said.
Around the world, the demand side for housing has ben fuelled by income growth as well as low interest rates.
“Increased supply will help but I am not convinced that even if you have a large increase in supply — that if the demand side keeps growing — I am not convinced that it will necessarily reduce house prices,” said Prof McQuinn.
“Higher private supply won’t necessarily reduce house prices, although it may reduce the pace of house price inflation. But as long as you have low interest rates and income growth in this country, that is going to fuel the demand side of the market.”