Parents gifting children €1bn from Bank of Mum and Dad fuelling house price rises
Parents are gifting their children an estimated €1bn a year from the ‘Bank of Mum and Dad’, dangerously fuelling house price inflation, a leading mortgage broker has warned.
Michael Dowling, who has held influential industry posts over many years, said “everybody” working in the mortgage industry, including estate agents and the mortgage banks themselves, is fully aware of the scale of additional money pouring into the market, which he describes as “the silent element that is influencing prices”.
He said almost all of his first-time buyer clients and a significant proportion of second- and third-time buyers are availing the ‘Bank of Mum and Dad’.
“Everyone thinks it is first-time buyers, but these are people who have bought and are buying a second time, and they are still relying on a leg up from their parents,” said Mr Dowling.
“It is a significant element in an Irish context and we are not talking about €5,000 or €10,000 a time. It is €50,000 or €100,000.”
He estimates that family gifting amounts to €1bn a year and that lenders know the figures but do not make them public. That is on top of over €10bn banks have advanced in new mortgage loans this year.
“Everyone in the industry, the estate agents know it, the lenders know that it exists and know it is the silent element that is influencing prices.
‘As big as the smaller banks’
“The Bank of Mum and Dad could well be as big as the smaller banks that exist in the market in terms of the contribution they make to the market,” he said.
The comments come amid increasing concerns about the pace of home price inflation.
Concerns that Government tax policies are fuelling house price inflation at a time of acute shortages has been spelt out by the Economic and Social Research Institute (ESRI), as it warns price hikes will continue into next year.
Kieran McQuinn, professor at the ESRI, said the existing help to buy scheme available for most home buyers and which has been extended into next year, as well as the shared equity scheme which is due to come into place for first-time buyers next year, are “unfortunately” adding to demand pressures.
Separately, the Central Bank is reviewing its so-called macroprudential rules that, among other things, limit the amount home buyers can borrow from their mortgage lenders.
CSO figures show home price hikes are running at 11%, while Goodbody chief economist Dermot O’Leary last week said he expects price increases to be running at 12.5% by the end of the year.
Mr McQuinn said heightened levels of demand amid pent-up savings from the Covid crisis and the economy performing well are pushing up prices. Curtailed house buildings and the effect of global increases in building materials costs have made matters worse, he said.
“Unfortunately, supply has been affected, and demand has not been, by Covid,” said Mr McQuinn, adding that supply of social and affordable housing will take time to kick in.
Mr McQuinn said easing of the mortgage rules at this stage “would be very dangerous” and “under no circumstances should they be eased”.
In particular, the loan-to-income ratio of 3.5 times, although set at a conservative level in 2015, was the “key” lever, and the Central Bank will leave well alone, said Mr McQuinn.
“The Central Bank certainly can’t ease them because easing them would just fuel house price inflation,” he said.
“There is nothing quicker to fuel prices than by tinkering with the loan-to-income ratio. Even if you were to move that to 3.75, or even up to four, it would add a considerable amount of inflation as far as house price inflation is concerned.”
Last week, the IMF warned about a new global house prices boom in many countries, including Ireland, that is being fuelled by an unusual mix of increases in the costs of building materials and mortgage rates at rock-bottom levels.
News by Irish Examiner
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