Bank of mum and dad

givememoney

Letter in the paper highlighted the trend of mum and dad forking out to give offspring deposit to buy a property.

He had a very valied point to make. Whilst mum and dad think they are doing the right thing, they are keeping property prices high. According to him 34% of the market is first time buyers and by helping them out prices will not fall.

By the same token when the building societies went over to taking into account the womans wage when issuing mortgages again house prices rose. Therefore when a baby came along she could no longer afford to give up work.

Panda78

I'm 33 and my parents are approaching 60. They haven't finished paying their own mortgage off so have been unable to help me with a deposit. I also want them to have money to enjoy their retirement, so i wouldn't want to accept a large lump sum off them anyway.

Linton

This is a nice example of an effect known as "The tragedy of the commons". If all parents did the right thing and didnt provide money for their offspring to buy a house then house prices would go down and all successful buyers would benefit. However in those circumstance any individual parent could see that by "cheating" and giving their children a bit of money they would give them an advantage in getting a good house in a good area. So unfortunately doing the right thing isnt a stable strategy, anyone who cheats gains a large advantage and so everybody who can cheats which puts us back to where we started.

aha77

Linton, you do not know what you are talking about. Look at the statistics of house prices and income over the last 40 years - particularly the last 10. In some areas the average house price has increased by over 100% whereas in the same area the average wage has increased 30%. Average house price over 200k, average wage approx 25k. Factor in the current increases in the cost of living - particularly for those renting and it doesn't take a genius to see the numbers don't stack up. There is a finite amount of money/wealth in any economic system and the baby boomers of the 60's have a disproportionate slice of it- Final salary pension schemes, cheap mortgages (now paid off), historically good returns on investments etc. The real problems started when banks started to lend massive income multiples - that is what drove prices up before the crash. Now the banks are aware that if they keep all the best deals for those that have a large deposit people will tap their parents for money and the cycle continues. Its not 'cheating' as you crassly put it, but then again I assume your parents didn't / couldn't help you?

Linton

aha77 wrote: »

Linton, you do not know what you are talking about. Look at the statistics of house prices and income over the last 40 years - particularly the last 10. In some areas the average house price has increased by over 100% whereas in the same area the average wage has increased 30%. Average house price over 200k, average wage approx 25k. Factor in the current increases in the cost of living - particularly for those renting and it doesn't take a genius to see the numbers don't stack up. There is a finite amount of money/wealth in any economic system and the baby boomers of the 60's have a disproportionate slice of it- Final salary pension schemes, cheap mortgages (now paid off), historically good returns on investments etc. The real problems started when banks started to lend massive income multiples - that is what drove prices up before the crash. Now the banks are aware that if they keep all the best deals for those that have a large deposit people will tap their parents for money and the cycle continues. Its not 'cheating' as you crassly put it, but then again I assume your parents didn't / couldn't help you?

You clearly havent understood the housing market. Houses will always cost the limit of what people can afford because people, at least in this country, are willing to pay as much as they can afford to live somewhere they consider appropriate. If parents help out, if spouses work, if the government subsidises first time buyers etc etc people can afford more. House prices will increase to remove that advantage so people are back where they started.

And no my parents didnt help me buy a house - in my time parents in general didnt, it was up to the kids to make their own way in the world. A large proportion of the population were unskilled and paid poor wages - no minimum wage at that time. Also many wives didnt work. So houses were priced around what one person could afford. I was lucky, my wife did work, we were both highly skilled and reasonably well paid and so we could easily buy a house.

Katykat

Aha77, where on earth are you coming from? The babyboomers may have a disproportionate slice of the pie but they've accumulated it by themselves. And where do you get the idea that mortgages were cheap? When we bought our first house in 1974 the interest rate was 8%. By 1979 when we moved house, it was 16%. Interset was calculated yearly, not dAily and believe me, that meant added a lot on to the loan. The difference was that it never occurred to us to ask parents for money. For one thing, most of our parents didn't even own their own homes themselves. There also wasn't any maternity leave. Once you started a family, the woman had to leave work. So, we had to keep within our budgets. There were no credit cards, you had to grovel to a bank manager if you asked for a loan, if you were lucky enouh to own a car, en it was usually just one car per family. We had to rent TV's, no video, sky, computers. If you didn't have the cash to buy something, you had to wait , save up and then buy it. So what money we had, went into the house. I'm not complaining, we didn't think we were compromised in any way, but it does irritate me when the present generation begrudge what we have now and just assume that we havn't earned it.

lady1964

When I met my OH in 1986, he was just buying his first house, he was 23 and the interest rate was pretty low from memory. He was earning a decent salary, more than enough to pay the mortgage/bills on his own.

By 1988/89, the interest rate had rocketed and we were finding things very difficult. We'd just our first DD too so I wasn't working. We got no help from either of our parents, they had their own mortgages/bills to pay.

Fast forward to now, we're so lucky that we have paid off our mortgage, our outgoings are quite low and we manage very well. However, we have 3 DD's who would all like to own their own property but I just can't see it happening. Certainly eldest DD is older now than OH was when he bought the first house. I don't know if we'll help our DD's out, quite frankly, we'd have to sell our house and seriously downsize to be able to do that. It sounds harsh to say they should have to learn to manage in the same way we had to, that they will appreciate everything they gain from doing that but I also think that's fair.

If we were absolutely minted and we wouldn't have to sacrifice our own lifestyle/property size, then I would probably offer to help out in some way, but I don't think it's selfish to not want to sacrifice those things if it would make our own lives less comfortable. We will always support our kids in any way we can but I think there has to be a limit.

aha77

I understand the housing market perfectly well. The necessity for parents to help is not so that people can buy a bigger house in a nicer part of town its because 90% LTV mortgages are few in number and the criteria required to get them is incredible tough. Read some of the posts on here and see the reasons that people have been declined - the odd late payment 3 years ago on a credit card etc. 7-8 years ago when banks were chucking money around and lending people 6-7 times their income and 125% of the value drove prices up. The government encourage this as it fed the economy by convincing people they were wealthier than they actually were (you only make money on a house if you cash it in after all). The parental help is actually needed to access the better deals, and by better deals I mean fair rates and criteria - the sort of criteria that existed probably when you purchased your first house. It's all very well sitting in your (mortgaged) ivory tower ruminating on the sins of the first time buyer but it's not parental help that's driving prices up or keeping them steady, as is the case at the moment, but the fact that 60+ million people are squeezed onto this tiny island. New developments are rapidly snapped up and to let signs promptly erected, thus reducing the supply of housing - basic supply and demand. That is what is keeping prices where they are, tough mortgage conditions for FTB and scarcity of available homes.

aha77

KatyKat, I do not begrudge you or anyone else for what they have achieved or earn't over the years. What I do resent is the attitude that what went before still holds true today. Times are very different now than they were, the collapse of the manufacturing industry, the rise of India and China as economic powers in recent years, these have all impacted on society. The post war boom years are not referred to as such for no reason. I think it is very easy for people to forget this. Small example, back in the day you could leave school with next to no qualifications and walk into a job, work hard and get the benefits of that, and rightly so - both my parents did that. Currently you cant get a job as a young person without a degree and a shed load of debt. What qualifies me to comment on this is a 10 year career in investment banking as an investment analyst.

seven-day-weekend

We gave our son the deposit for a flat costing £65k as he does not earn much and needed to keep the repayments affordable. His only other options were to stay living at home or to rent (which would have cost more than his mortgage repayments) and claim Housing Allowance to top up his rent, as he would not have been able to afford it

Why should we not help him out, it is not as though we have enabled him to buy a four-bed detached house, it is a modest two-bedrooom flat.

He claims no Benefits at all and the money we have given is the same amount as my husband inherited from his mother, via her tiny bungalow, so imho, it is only right that our son has it.

I do not see how we have helped to keep prices high.

aha77

You haven't kept prices high, but I'm sure other posters here would think that spending the inheritance on a cruise or two would have been a better use of the money