Bank of mum and dad

seven-day-weekend

aha77 wrote: »

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

We actually put it towards the purchase of a house in Spain (when prices were very low!) and lived there for eight years. The money now has come from the sale of the Spanish house.


So we did enjoy the money ourselves first

bowlhead99

Linton wrote: »

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

I completely agree with this - despite low interest rates it is difficult for the children to access enough capital to support a purchase of a FTB house at their high prices. The difficulty of access would reduce demand for FTB houses and drive the price down. But some parents are in a position where they can help out and provide their child more capital so that child can raise finance to put an offer in that they would not have been able to do on their own. These additional offerors will compete against each other and the overpriced house will continue to be overpriced through this new demand. As a group, every parent could refuse to help and prices would fall.

But parents understandably want to help, and if your neighbours kids do NOT offer 100k for the house, your kid might be able to pick it up for 95k if only he could get his 9.5k from you. So you help. And your neighbour helps their kid offer 96k with a 9.6k contribution from them, because they don't want him at home and everything under 90k is rubbish. And the next neighbour helps their kid offer 97k for the same reason. And the rubbish houses which used to be sub-90k are now 95k because there are two spare buyers with 95k+ finance and although those rubbish houses are not 'worth' 95k, it's better than "never being able to get onto the property ladder".

aha77 wrote: »

Linton, you do not know what you are talking about

aha77 wrote: »

... - basic supply and demand. That is what is keeping prices where they are...

Basic supply and demand has always dictated prices and always will. Surely you can see Linton's examples of parental capital, working spouses, government incentives like stamp duty holidays / key worker equity funding, as being something that drives the demand - the number of people that can put in an offer for a given price.

seven-day-weekend wrote: »

We gave our son the deposit for a flat costing £65k as he does not earn much .... His only other options were to stay living at home or to rent... as he would not have been able to afford it

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

I could have bought that flat for 62k. Either because I could rent it out for an income, or because I needed somewhere to live, or because I was bullish about future prices and fancied being a speculator. Or whatever. Your son would not have competed with me at that price, because he does not earn much and did not have enough deposit for a bank to feel safe that they could lend him the difference at a nice low rate.
Your son could not get the flat. He would have rented or lived with you. I would have just bought it for the bare minimum the buyer would accept. In time, maybe 60k. Maybe 50.

The bare minimum acceptable to the seller would have fallen until somebody raised enough cash from mortgage, savings, investments, wherever. If they didn't like the falling price, they might not sell their place at all, and they wouldn't be competing with other buyers to get a 90k place down the road, as their money was tied up in the FTB house. The 90k place down the road would sell for 85k. If you can get a nice place down the road for 85k, nobody would want to pay 65k for the flat. I would drop my offer again.

Eventually I'd get it for a price I liked and your son has no way of competing with me and bidding the price up because I earn more than him, can get a cheaper mortgage or perhaps don't even need one so I would complete the purchase faster and the seller would prefer that.

By being a generous parent you have helped your son compete on my terms and made the property sell for more than it would. This is good for your son because it has helped establish a 2012 'market price' of £65k which will be considered when he sells in 2017. But now every low income young person coming in at his level is expected to keep finding 65k for similar flats; great news for home owners bad news for non-home owners.

Southend1

Katykat wrote: »

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.

Unfortunately a lot of the wealth of the baby boomers came from increasing the national debt (i.e. making future generations pay for their consumption), selling off nationalised industries to foreign investors, Ponzi scheme state pensions etc etc. My parents have more wealth than I can ever hope to have (I am in my 30s, they are early 60s) and it is unlikely any of this wealth will pass to my generation due to the cost of care which is increasing due to higher life expectancy. I expect many people my age will be forced to rent forever, working til they drop. It looks unlikely that I will retire until I am at least 70, maybe later if the government meddles with pensions even more in future, whereas my father retired in his early 50s and my mother never needed to work (although she chose to do so part time for a few years).

thorsoak

aha77 wrote: »

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

So this is your expert advice as an investment analyst in an investment bank with 10 years experience?

Maybe that statement of yours says more about why we are in the financial mire than you realise!

aha77

Are you being straight up? I was being sarcastic concerning previous posts. I'll make future posts more unambiguous and clear so you can follow.

Linton

Southend1 wrote: »

Unfortunately a lot of the wealth of the baby boomers came from increasing the national debt (i.e. making future generations pay for their consumption), selling off nationalised industries to foreign investors, Ponzi scheme state pensions etc etc. My parents have more wealth than I can ever hope to have (I am in my 30s, they are early 60s) and it is unlikely any of this wealth will pass to my generation due to the cost of care which is increasing due to higher life expectancy. I expect many people my age will be forced to rent forever, working til they drop. It looks unlikely that I will retire until I am at least 70, maybe later if the government meddles with pensions even more in future, whereas my father retired in his early 50s and my mother never needed to work (although she chose to do so part time for a few years).

Err where will all this boomer wealth go if it doesnt eventually go to the next generation? Evaporate?

The boomer generation didnt sell off the nationalised industries; most werent old enough to have reached positions of power when it happened. It was mostly done by the generation prior to them. The first boomer PM was Tony Blair. State pensions began in 1908, introduced by Lloyd George. The national debt as a % of GDP was the lowest it had been since the first world war during the period 1990-2007.

Provided you have a reasonable income, average or better, you live a sensibly restrained lifestyle and invest as much as you can you have a good chance of being very wealthy by the time you are 60. If you dont meet these criteria then you probably wont, but then no-one would have in any generation.

thorsoak

Yes I am! If, as a financial analyst that is the best that you can come up with - you are aged - what? Early 30s? I expect that sort of comment from a student - not an "expert".

seven-day-weekend

bowlhead99 wrote: »

I completely agree with this - despite low interest rates it is difficult for the children to access enough capital to support a purchase of a FTB house at their high prices. The difficulty of access would reduce demand for FTB houses and drive the price down. But some parents are in a position where they can help out and provide their child more capital so that child can raise finance to put an offer in that they would not have been able to do on their own. These additional offerors will compete against each other and the overpriced house will continue to be overpriced through this new demand. As a group, every parent could refuse to help and prices would fall.

But parents understandably want to help, and if your neighbours kids do NOT offer 100k for the house, your kid might be able to pick it up for 95k if only he could get his 9.5k from you. So you help. And your neighbour helps their kid offer 96k with a 9.6k contribution from them, because they don't want him at home and everything under 90k is rubbish. And the next neighbour helps their kid offer 97k for the same reason. And the rubbish houses which used to be sub-90k are now 95k because there are two spare buyers with 95k+ finance and although those rubbish houses are not 'worth' 95k, it's better than "never being able to get onto the property ladder".


Basic supply and demand has always dictated prices and always will. Surely you can see Linton's examples of parental capital, working spouses, government incentives like stamp duty holidays / key worker equity funding, as being something that drives the demand - the number of people that can put in an offer for a given price.




I could have bought that flat for 62k. Either because I could rent it out for an income, or because I needed somewhere to live, or because I was bullish about future prices and fancied being a speculator. Or whatever. Your son would not have competed with me at that price, because he does not earn much and did not have enough deposit for a bank to feel safe that they could lend him the difference at a nice low rate.
Your son could not get the flat. He would have rented or lived with you. I would have just bought it for the bare minimum the buyer would accept. In time, maybe 60k. Maybe 50.

The bare minimum acceptable to the seller would have fallen until somebody raised enough cash from mortgage, savings, investments, wherever. If they didn't like the falling price, they might not sell their place at all, and they wouldn't be competing with other buyers to get a 90k place down the road, as their money was tied up in the FTB house. The 90k place down the road would sell for 85k. If you can get a nice place down the road for 85k, nobody would want to pay 65k for the flat. I would drop my offer again.

Eventually I'd get it for a price I liked and your son has no way of competing with me and bidding the price up because I earn more than him, can get a cheaper mortgage or perhaps don't even need one so I would complete the purchase faster and the seller would prefer that.

By being a generous parent you have helped your son compete on my terms and made the property sell for more than it would. This is good for your son because it has helped establish a 2012 'market price' of £65k which will be considered when he sells in 2017. But now every low income young person coming in at his level is expected to keep finding 65k for similar flats; great news for home owners bad news for non-home owners.

We already knocked the seller down from £72k. They had moved out of the flat two years before. Flats in that block for sale now have asking prices of around £70-£75k.

Southend1

Linton wrote: »

Err where will all this boomer wealth go if it doesnt eventually go to the next generation? Evaporate?

The boomer generation didnt sell off the nationalised industries; most werent old enough to have reached positions of power when it happened. It was mostly done by the generation prior to them. The first boomer PM was Tony Blair. State pensions began in 1908, introduced by Lloyd George. The national debt as a % of GDP was the lowest it had been since the first world war during the period 1990-2007.

Provided you have a reasonable income, average or better, you live a sensibly restrained lifestyle and invest as much as you can you have a good chance of being very wealthy by the time you are 60. If you dont meet these criteria then you probably wont, but then no-one would have in any generation.

Most of their wealth goes to the foreign utility owners, the immigrant workers who provide domestic and social service, the foreign hotel operators and tourism workers etc. And of course to the Chinese providers of consumer goods.

I expect GDP during the period 1990-2007 was inflated by the huge amount of money (debt) created by the banks at the time.

State pensions are not the only pensions that are transferring wealth to my parents generation from mine- think of company FS schemes which aren't fully funded, unfunded public service pensions etc

aha77

What are you on about? You dive in with a post not understanding the context of the post you reference. Do you even know what sarcasm is?