Parents are giving their children about $ 1 billion a year from “Mommy and Daddy’s Bank”, dangerously fueling house price inflation, a leading mortgage broker has warned.
Michael Dowling, who has held influential positions in the industry for many years, said that “everyone” working in the mortgage industry, including real estate agents and mortgage banks themselves, is fully aware of the ‘magnitude of the extra money flowing into the market, which he describes as “the silent element that influences prices.”
He said that almost all of his first-time buyers and a significant proportion of second and third buyers take advantage of “Mommy and Daddy’s Bank”.
“Everyone thinks they are first time buyers, but these are people who have bought and bought a second time, and they are still counting on a helping hand from their parents,” Mr. Dowling said.
“This is an important element in an Irish context and we are not talking about 5,000 or 10,000 € at a time. It’s € 50,000 or € 100,000.
He estimates that family donations amount to € 1 billion per year and that lenders know the numbers but do not make them public. This is in addition to the more than 10 billion euros that banks have made in new mortgages this year.
“Everyone in the industry, realtors know it, lenders know it exists and know it’s the silent element that drives prices.
“Mommy and Daddy’s Bank may well be as big as the small banks that exist in the market in terms of the contribution they make to the market,” he said.
The comments come amid growing concerns about the pace of home price inflation.
The Economic and Social Research Institute (ESRI) has expressed concern that the government’s fiscal policies fuel house price inflation during times of acute scarcity, which warns that price increases will continue into the next year.
Kieran McQuinn, professor at ESRI, said the existing purchase assistance program available to most homebuyers and which has been extended until next year, as well as the shared capital program which is due to come into place for first-time buyers next year. , are added “unfortunately” to the pressures of demand.
In addition, the Central Bank is revising its so-called macroprudential rules which, among other things, limit the amount that home buyers can borrow from their mortgage lenders.
CSO figures show the rise in house prices is 11%, while Goodbody chief economist Dermot O’Leary said last week that he expects price increases reach 12.5% by the end of the year.
Mr McQuinn said increased levels of demand amid savings built up from the Covid crisis and the economy doing well were pushing up prices. The construction of scaled-down houses and the effect of rising global building material costs made matters worse, he said.
“Unfortunately, supply has been affected, and demand has not, by Covid,” McQuinn said, adding that the supply of social and affordable housing will take time to get started.
Mr McQuinn said loosening the mortgage rules at this point “would be very dangerous” and “under no circumstances should they be relaxed”.
In particular, the 3.5-fold loan-to-income ratio, although set at a conservative level in 2015, has been the “key” lever, and the central bank will be doing well, McQuinn said.
“The central bank certainly cannot relax them because easing them would only fuel house price inflation,” he said.
“There’s nothing faster to fuel prices than tinkering with the loan-to-income ratio. Even if you were to move it to 3.75, or even up to four, it would add a considerable amount of inflation when it comes to house price inflation. is concerned.”
Last week, the IMF warned of a further global spike in house prices in many countries, including Ireland, fueled by an unusual mix of rising building material costs and rising mortgage rates to low levels. extremely low.