‘Bank of Mum and Dad’ gives millennials a 10-year boost over their peers

Now, data from the Bank of England shows that what young Brits get from “the Bank of Mum and Dad” gives them a 10-plus year leg-up in buying homes. 

“Those who have had help from their parents put down a deposit twice as large, bought bigger first homes, and had smaller mortgage payments than those who did not,” May Rostom, a top analyst at the Bank of England, wrote in a blogpost Tuesday.

“The average 26-year-old with help paid about £254,000 ($327,813) for their first home. Those with no help waited a decade – until they were 37 – to buy a property for an equivalent sum.”

The rise of ‘inheritocracy’

This data reflects the larger trend of “inheritocracy” where parents help their kids with property investments.

It’s compounding the existing wealth gap in a housing market where prices have risen steeply and mortgage rates have soared in recent years.

The country’s cost-of-living crisis has also exploded at the same time, making affordability an even bigger concern.

Rostom wrote that parents’ help is “substantial” and could mean that young Brits offer higher prices for homes that some of their peers without support can’t compete with, thus pricing them out of the market. 

“On average, deposits are two and a half times larger, loans are 30% smaller, and houses cost £15,000 ($19,369) more for those getting help, compared with those who are not,” according to Rostom. “This means ‘Bomad borrowers’ are typically less-leveraged and have lower mortgage payments, leaving more leeway for them to save or spend their incomes on other things.”

The data also proves that if parents chipped in to help their children buy homes, it could “affect your entire homeownership trajectory.”

Those who don’t receive support from their parents have to wait substantially longer to buy a house of similar value or buy cheaper homes from their own earnings.

This, Rostom thinks, can worsen differences between and within generations.  

However, the increasing role of “Bomad” is not a new phenomenon—even the years preceding the pandemic, over half of those surveyed by data company YouGov said their parents helped them finance their first home.

With a greater financial crunch now amid high inflation and tight interest rates, the proportion of people seeking help from parents to buy houses could grow further. 

What is the housing situation in the U.K. like?

The U.K. has faced a tight housing supply for years and has been below the government’s target of 300,000 homes per year.

That, in turn, has an impact on the pricing of homes.

As of January, the average house price in the U.K. was £290,000 ($374,394)—which marked a 6.3% increase in a 12-month span.

London is the priciest market in the U.K., with average housing prices as high as £523,000 ($675,347) in March 2023, according to government data. In other big cities like Manchester and Liverpool, the average property prices are £250,000 ($322,924) and £202,000 ($260,922), respectively. 

Rents have also sky-rocketed, with June marking a record-high increase of 5.1% year-over-year. In London, the annual percentage change in private rents was way above England’s average for the same period. 

A big reason this increase causes a pinch in the pockets of the average person is that wages aren’t increasing at the same pace.

Data shows that between 2012 and 2021, while house prices rose 53%, wages only grew 19%, The Telegraph reported.

However, experts have noted signs of cooling in the housing market, with U.K. home prices declining by the most since 2009 in the 12-month period leading to June.