Should ‘Bank of Mom and Dad’ financially support struggling First Time Buyers?

Survey reveals over 50% welcome the idea of financial help towards a deposit from parents

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Should ‘Bank of Mom and Dad’  financially support struggling First Time Buyers?

More than half of Irish people (51%) believe parents should provide financial assistance to their adult children to purchase their first home when they can afford it. This is according to a survey commissioned by Lotus Investment Group, a Dublin-based investment management firm which lends money to property developers and carried out by iReach on 1,000 people throughout the country.

The survey results saw 51% of people voice their support for financial parental assistance, while 34% said it can only be determined on a case by case basis, and a further 15% believed it was not a good idea to varying degrees.

Speaking of the survey David Grin, Chairperson of Lotus Investment Group,

“Property price growth has slowed considerably with the market now close to equilibrium, which is good for buyers. However, as evidenced by recent reports, the fact remains that affordability is still a challenge for thousands of would-be First-Time-Buyers all over the country. The Central Bank of Ireland mortgage lending limits continue to preclude some people from taking those first steps onto the property ladder, with recent research pointing to the amount of deposit required as being the biggest stumbling block in many cases. High rents and high property prices are making that elusive ‘10%’ a challenge, as those in their 20s and 30s struggle to budget for monthly expenditures and the savings required.

But is the ‘Bank of Mom and Dad’ an option for financial assistance or should it be? This is certainly a delicate topic. While some families are fortunate enough to have the financial means to help their children out if they so wish, there are many others for whom it’s simply not affordable. In many cases, sons and daughters would know the finances of their parents and so would never approach them for assistance, but in some cases the financial situation may not be as clear, and parents may feel under pressure to come up with the cash from somewhere – though they too might be finding their finances tight.”

The Lotus IG survey reveals that while 51% are broadly in favour of parents helping out their children to get their first home, a large portion (36%) of this group are cognisant of the fact that the parent’s financial future should be taken into account before making any big decisions in this regard.

Mr. Grin continued,

“It’s also important for these parents to take into account that while they may be managing financially at the moment, they do have their retirement to think about – and it’s important that people don’t end up handing over thousands that they find they themselves might need as their own nest egg when they stop working, and perhaps still have their own mortgage to pay. What was also interesting to note from the survey was that a significantly higher number of men (19%) than women (11%) felt their parents should ‘support their children, whenever they can, no matter what’.”

Experts at Lotus IG say that before looking at the moms and dads of Ireland for financial support, questions must be asked of the Government’s response to plight of FTBs. Mr. Grin supported the continuation of the Help to Buy Scheme in the upcoming Budget.

“There is definitely merit in continuing with the Help to Buy Scheme, and while home buyers may welcome a loosening of the mortgage lending rules, the Central Bank has intimated that this is probably not on the cards.”

Lotus IG say reports have found that the property market in Ireland does not paint the same picture wherever you look – for instance prices in Dublin have slowed significantly (just 1.2% higher than this time last year) whereas in Munster they are 11% more than they were a year ago, with supply remaining a big issue[1]. These regional difference were also highlighted in the recent EY DKM report[2] on housing affordability in Ireland, which ranked the counties in order of FTB affordability. The research found that in some counties it would take anywhere from 1 to 15+ years for a First-Time-Buyer to save the deposit required.

Highlights from the Lotus IG survey included, when asked,

“If parents have adequate savings, do you think they should give some to their adult children to help them buy their first home?”

Older adults (over 55) who are likely to be parents with grown-up or nearly grown-up children are more supportive of the idea than middle aged adults between 35-54 - 59% as opposed to 48%;
More men than women believed that financial assistance from parents was a good or great idea - 56% versus 47%;
Considerably more men (56%) than women (47%) think of the idea of parental financial support as either great or good;
Dubliners don’t embrace the idea of getting financial help from parents – 18% consider it either not good or bad which is ↑3% above the overall trend;
There is a significant country/city divide that likely relates to the cost of housing – only 10% of those living in Dublin believe that parents should always support their children whenever they can, compared with 25% in the rest of Leinster.