We need to reinvent the Bank of Mum and Dad
According to Barclay’s first-time buyer index, 56% of first-time buyers get help buying their first home.
What does this tell us? First, it tells us the system is broken – very, very broken.
Second, it tells us that someone else must be footing the bill. First-time buyers are still purchasing homes. But how?
A broken crutch in a broken system
The answer is close to home. Behind many hefty deposits on London starter flats is help from family – especially Mum and Dad.
Earlier generations could save for a deposit working one full time job. But as prices have gone up and wage growth has stagnated, this is no longer a viable option for most people.
The Bank of Mum and Dad, or BoMAD, has been forced to step in.
But while it is a kind, generous “institution” – the BoMAD gifted almost £9 billion in 2022, according to Saville’s, making it the 10th biggest lender in the UK – this kind of intervention may hurt just as much as it helps.
BoMAD is bankrupting itself
According to an LSE report on the BoMAD prepared for the Family Building Society, 20% of participants in a focus group said they wouldn’t give money to family to help them purchase a home.
Why? They’re worried about their own futures.
Although older generations may appear to have amassed more wealth than Millennials and Gen Z – in part due to their own ability to get on the property ladder more affordably – the cost of living crisis and the pruning of the UK’s old age securities impacts them, too.
As the cost of later life care continues to rise, Gen X and Baby Boomers must pay careful attention to their own financial planning for old age.
This trend has two negative outcomes: fewer families are able to give money to boost first-time buyers onto the ladder and the families that can gift money are put under greater financial strain as a result.
This might seem like a flaw within the BoMAD system – but again, this was a system that never should’ve needed to exist. As the BoMAD fund begins to dwindle, these trends will feel more present for more families as still fewer young adults can afford to purchase and even fewer family members are able to support them.
This worrying trend is inverse to another posited outcome of BoMAD gifts and lending – that helping family onto the ladder with monetary gifts keeps house prices higher than they should be.
This means, increasingly, only the wealthiest families can pay to play.
Cycles of inequality continue
There’s certainly no ill will involved as parents help their children onto the ladder. But parents gifting money, investments or other assets to their children or grandchildren creates and sustains generational wealth.
Generational wealth contributes to the unequal distribution of wealth because those who live in financial comfort are able to ensure that their children do too. This gives the children of wealthier families a leg up, while those without generational wealth are left behind.
This issue compounds other social divides. For example, a recent report from the Institute of Fiscal Studies said that white people were three times as likely to receive a substantial gift from their families than peers from Pakistani or Bangladeshi backgrounds.
Disproportionately, families impacted by other systemic biases are more likely to be trapped in the predatory rental cycle for generations, locked out of the independence and financial security that homeownership can bring.
And this impact compounds with time, which is why it requires urgent intervention.
In helping their children onto the ladder, families are also helping their children access the engine for wealth creation that can come with homeownership – and the cycle of inequality continues.
Conversely, for every generation of a family locked out of property ownership, the more challenging it can become to ever break through and buy in the future.
Mum and Dad are not bad people for wanting to help their children, but this imperfect system has ripple effects.
It shouldn’t be the responsibility of older generations to fund the property purchases of their children.
The Bank of Mum and Dad isn’t a long term solution
It’s critical we don’t delude ourselves into thinking that the Bank of Mum and Dad would play this role in a healthier economy.
It shouldn’t be the responsibility of older generations to fund the property purchases of their children. And that’s to say nothing of the millions of families who can’t afford to gift money at all. What about them?
The true fixes to this housing crisis must come from sweeping changes to the structures that underpin homebuying and homeownership in this country. We need more housing stock and better regulation of holiday and short-term lets. We need more government-sponsored footholds to boost people up. But this obviously is not something that can happen overnight.
So in the meantime, we need to create solutions to help more people onto the ladder today. We need to reinvent the Bank of Mum and Dad so it works for more people and more families in different circumstances.
Recycling wealth – finding ways to use the same money more than once – can help.
In part, this means creating tools that help parents safely and easily loan money to their children rather than offering an outright gift. This means parents’ money can come back to them down the line, so their retirement plans can be safeguarded. They could even use the same pot of money to help more than one child.
And what if there were other incentives to encourage parents to lend money responsibly? By allowing parents to purchase a stake in a home, they could co-invest with their children and can earn a return if the value of the home appreciates over time.
The government – or even private companies – could match parental gifts to help their children afford more. These incentives can make it possible for more families to lend a hand.
(We’re building tools like this – you can visit our site to learn more.)
While broadening access to the Bank of Mum and Dad should help more people buy homes in the short term, it’s important to remember that some families will still be locked out even with these new tools.
That’s why the BoMAD isn’t a long term solution. The problem is bigger – and we can’t stop seeking solutions until homeownership becomes truly accessible to everyone.