The bank of mum and dad is having a moment. Yes, it may have been around for years but, increasingly, wealthy boomers and Gen Xers are cited as playing an ever-more important role in determining the financial outlook of their children.
This is creating a greater divide between those whose parents have and those who do not.
This month, New York magazine examined how parents are “slowly transferring trillions of dollars to their New York city children”, while the Financial Times recently likened the situation to the old TV drama, Upstairs Downstairs about the upper classes and their servants in early 20th-century England.
In this case, the “upstairs” people are those who can afford to own a home with more than one storey, and the “downstairs” people are stuck renting a flat.
Just last week, UK building society Skipton Group published a survey showing that just one in 10 potential first-time buyers can afford to get on the property ladder without relying on their family for financial help.
Here in Ireland, the gap between the upstairs and downstairs looks to be widening all the time. New estimates point to more than half a billion euro worth of gifts pouring into the Irish property market each year.
All of which makes an already pricey property market even more expensive.
“Parents’ gifts are making the difference ... no one can deny it’s a contributory factor to house price inflation,” says Michael Dowling, managing director of Dowling Financial mortgage brokers in Dublin.
Bigger gifts
Just before we speak, Dowling says, he was working with a couple on a house application who are bringing a sizeable sum to the table – a gift of some €117,000.
It’s not the typical gift – Dowling puts this at about €50,000-€60,000 – but it’s not that unusual either.
“I would say that it [giving gifts] has become particularly noticeable over the past five years, it’s now quite significant,” he says, adding that in his experience in the Dublin market, “at least seven out of 10 [purchasers] are now getting gifts”.
With stock in short supply, that creates an unequal playing field, as those with the benefit of family gifts chase the same property as those without those benefits.
Martina Hennessy, chief executive of mortgage broker Doddl.ie, says that gifts are prevalent today, with a third of its clients receiving gifts when buying a home. Almost 85 per cent of those who got a gift were under the €100,000 threshold in her experience, with an average gift of €27,000.
But that means 15 per cent received a gift that was in excess of €100,000 – and, among this cohort, the average gift was a staggering €198,000.
Brian Dempsey, a partner in DNG Stillorgan, says a gift from the bank of mum and dad now “plays a pivotal part in buying a home in today’s market”.
“Gifts used to be worth about €10,000-€15,000, but they are considerably more now, I’d say,” he says, adding that these gifts, and the added flexibility it offers house purchasers when making offers, can make or break a house purchase when you have multiple people bidding on it.
Official statistics are difficult to come by. Back in 2021, Banking and Payments Federation Ireland (BPFI) collated figures (the last time it has done so) showing that first-time buyers got financial help from family of some €149 million in the first six months of that year, and those trading up got nearly €60.5 million.
On an annual basis, this meant about €420 million in gifts a year.
Fast forward some four years and industry experts say the scale of gifts must now be well in excess of half a billion.
Wealthy boomers
It’s clear that those who have are looking to give.
“Gifts bridge the gap on affordability as many parents who have the means to do so provide gifts now as opposed to future inheritance,” says Hennessy.
There is some €155 billion currently languishing on deposit in Ireland and falling rates of return on such deposits may encourage those who have the financial resources to gift now, when it can make a bigger impact on a child’s life, rather than waiting until death.
After all, baby boomers and many in Generation X have themselves benefited from a sharp increase in house prices.
Ultimately this inheritocracy is having a direct impact on rising inequality in terms of access to the housing market
Back in 1982, for example, you could buy a five-bed detached house at Grove Lawn in Blackrock for £79,000: that house would now likely sell for more than €1 million.
Of course inflation does account for some of this gain – £100,000 back in 1982 would be worth €301,785 today according to the Central Statistics Office (CSO) – but there is still a significant gain made on that property.
And many such homeowners also finished paying their mortgage quite some time ago. CSO figures show that some 680,000 homes in Ireland were owned without a mortgage in Census 2022.
Inflating prices
No surprise then that all this gifted money flowing into the property market is contributing to higher house prices.
At a simple level, higher house prices mean higher deposits. Figures from the CSO show that, in the year to November 2024, house prices rose by 9.4 per cent nationally. This put the median price across the State at €350,000, and €470,000 in Dublin. Just two years earlier, in November 2022, the median national price was just €299,500.
And thanks to gifts, home buyers don’t always have to stretch themselves when it comes to borrowing. Figures from the Central Bank show that home buyers now typically buy a home with a significantly higher down payment. The average loan to value on a first-time buyer loan in the first quarter of last year was less than 80 per cent, indicating a typical 20 per cent deposit.
And it was even less for second-time buyers, at just 66 per cent, reflecting a typical down payment of some 34 per cent.
With a median house price of about €655,000 in Dún Laoghaire, south Dublin, this would suggest a deposit of some €131,000 for a first-time buyer, or €222,000 for a trader upper.
Saving that sort of money is hard when rents are at record highs; the average rent for a new tenancy nationally stood at €1,612 per month in the first quarter of last year, and €2,128 in Dublin.
But the level of gifting means that some first-time buyers are now skipping the typical starter home stage and going straight for the if not quite forever home, then a home for the longer term.
So they don’t borrow less; they just use the gift to buy a more expensive property.
“It can be the difference between living in one part of Dublin compared to another,” adds Dowling, “or buying a three-bed rather than a two-bed, or one that’s in better condition and doesn’t need renovations”.
Pressure
The scale of gift-giving is now such that many parents can feel an obligation to help their children get on the property ladder – even if they can’t really afford it.
“Absolutely, there is an expectation that they’re going to get a gift,” says Dowling. “When we meet couples, they now say ‘and we’ll be getting a gift’ as part of the process.”
This can put parents under financial pressure at a time when they may need the funds themselves for their own retirement.
“Gifts are now so prevalent and so large that people need to be careful,” says Dowling.
Dempsey agrees that there is a pressure, which means that some parents can end up giving more than they had intended.
“I bet you that gift amounts change,” he says, adding that some parents may commit to a gift of €20,000, but end up having to hand over €50,000 to get their children on the ladder.
Another issue can arise when couples may not have any legal arrangement for buying a home.
“When a couple isn’t married, there is often a reluctance from one set of parents to giving a gift,” says Dowling.
After all, if the relationship breaks down, and the home is sold, it can be difficult to recoup the money given as a gift, as it’s likely it will depend on the party who didn’t receive the gift to “do the right thing” and give it back.
“In an ideal world, they would both bring the same gift,” says Dowling, “but in reality it’s not the case”.
Other times couples will come to Dowling and say: “We’ll sign the papers to say it’s a gift, but on the side, we have a loan agreement.”
In some instances, Dowling says, this is because parents want to protect their interests – even if it doesn’t really stack up as such. Other times, people might be looking to get around the tax-free threshold on inheritance tax by passing the money off as a loan rather than a gift.
However, it should be noted that Revenue has firm guidelines on such loans – and signing a legal document to say the money is a gift may preclude then being seen as a loan down the line.
Better to try to use the small gift exemption – which could see the parents of a couple contribute tax-free savings of some €12,000 a year.
Ultimately this inheritocracy is having a direct impact on rising inequality in terms of access to the housing market.
Government supports, such as Help to Buy, which offers a tax rebate of as much as €30,000 on a new home purchase of up to €500,000, can help closing the affordability gap on a deposit.
But with new house supply lower than expected, finding a home that meets the criteria isn’t always that easy; a quick search on myhome.ie for example, shows that there are just five new developments for sale at prices of lower than €500,000 in Dublin.
This makes it more difficult for the have-nots to get on the housing ladder. “That social divide is going to continue,” says Dowling.
