Bank of Mum & Dad inflates deposits for first-time mortgages to €52,000

Bank of Mum & Dad inflates deposits for first-time mortgages to €52,000

In just six months, gifts from parents accounted for about €209m of the money spent on Irish properties — ultimately putting up the price of the very homes those young people are seeking to buy. 

Many first-time house buyers are being forced to turn to gifts from ‘the Bank of Mum and Dad’ to help make up the €52,000 deposit needed to secure a mortgage, according to new banking industry figures.

The size of the digouts — revealed for the first time by the Banking & Payments Federation Ireland (BPFI) — has led to warnings from experts that some of the additional billions saved by households during the Covid crisis are being gifted to family members, helping drive house prices higher.

The figures show first-time buyers required financial help from family members that amounted to over €149m in the first half of the year alone.

Nearly €60.5m was gifted to mover purchasers who needed a new mortgage because they were moving on from their first home.

The BPFI figures show the median deposit required by a first-time buyer was over €52,000, and the median deposit required for a 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 BPFI said the main source of deposits was still from savings, with 96% of first-time buyers using savings to fund their deposits for mortgage loans.

Brian Hayes, CEO of the Banking & Payments Federation Ireland. Picture: Daragh McSweeney/Provision
Brian Hayes, CEO of the Banking & Payments Federation Ireland. Picture: Daragh McSweeney/Provision

The banks have privately known for many years the size of gifts going to help meet deposits because borrowers applying for a mortgage have to declare how much of their funds come from family members.

BPFI chief executive Brian Hayes said the figures suggest that rising house prices are leading to increased amounts needed for deposits.

Experts warn the BPFI figures show that some of the many extra billions put aside in savings by households during the pandemic are also helping fuel house prices.

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 purchasers also required family help to secure a mortgage loan.

“Not only are first-time purchasers relying on mummy and daddy, but when they move they are also relying on mummy and daddy as a source of funds to help them buy homes,” said Mr Dowling.

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 shot up to 12.4% during the pandemic, “and you have additional risks of these excess savings”, said Prof McQuinn.

In an Irish context, the danger is that there will be a double impact from the pandemic, from an increase in house prices on one hand, and from supply being impacted. 

The “key point” is the macro prudential, or mortgage rules, designed to keep house prices in check, must remain in place, said Prof McQuinn.

On the rental side, the danger is we will see further increases in rent, he said.

Around the world, the demand for housing has been fuelled by income growth as well as by 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,” Prof McQuinn said. 

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