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Thursday 24 January 2019

Home truths: Leo can't bank on 'mum and dad' anymore

The 'bank of mum and dad' may be a long established option in Irish house buying culture but accepting it as mainstream is putting unecessary pressure on older folk in the squeezed middle
The 'bank of mum and dad' may be a long established option in Irish house buying culture but accepting it as mainstream is putting unecessary pressure on older folk in the squeezed middle
Mark Keenan

Mark Keenan

Could Leo Varadkar's assertion that it is commonplace for middle Ireland's first-time house buyers to take their deposit from the "bank of mum and dad" be one of his greatest ever political gaffes?

Well that likely depends on just how many 'middle Ireland' parents really can afford to hand over a €30,000 to €60,000 lump to each of their offspring without feeling the pain themselves. If he's wrong, his "bank of mum and dad" quip will represent a sting that so many voters are unlikely to forget and payback will come at the polls.

It is just over three years since the Central Bank of Ireland reined in property price inflation overnight by launching the strictest mortgage lending regime in generations.

The measures included a 3.5 times income-to- loan criteria and a hefty 20pc deposit requirement and the rules were introduced at a time when Dublin house price inflation was hitting close to 20pc per annum.

Around that time this column made four observations on the Central Bank's action and the likely repercussions. First I asserted that because of its duties to prevent future bubbles and house-price driven economic carnage, the Central Bank actually had no choice at all on whether or not to bring in these restrictions.

In the absence of a reasonable level of housing supply and due to the fast improving economic outlook, emergency measures were required with urgency to tackle house-price inflation at that point.

Second, I pointed out that these measures could only work temporarily - but that they would serve to buy the Government a window of time in which to prepare and usher through policies which would enable a rapid increase in the provision of new homes to the market - that increasing supply provided the only real solution.

I asserted then that those lending restrictions represented the equivalent of the Central Bank taking on the role of the small boy of Dutch legend - who inserted his hand into the hole in the dike to prevent it collapsing and causing a disaster for all. But since 2014 the Government, lately led by Mr Varadkar, has made plenty of promises and rolled out successive big plans; but the reality is that little in the way of supply has been brought to bear in those three years since.

House-price inflation is Dublin is currently running at a heated 10pc and in other parts of the country they are hitting as high as 36pc (see the latest figures online in the Irish Independent's How Much Is Your House Worth? 2018 which values all properties nationwide and records their price movements).

Third, back in 2014 I predicted that plugging the problem with lending restrictions in the absence of measures to increase supply would simply cause an unprecedented surge in rents. Today it is not unusual for a three-bed home in a bland Dublin suburb to command a monthly rent of €2,400 - the equivalent of an above average net salary. City rents are now running above boom levels.

The final observation I made was that these measures sadly represented a boon for the privileged adult offspring of wealthy parents. With prices running as high as they had been, and increasing rents curtailing the ability to save, only those who could call upon €30,000 to €50,000 gifts from the 'bank of mum and dad' would be at the races from 2014 on when it came to buying a house in the city.

And so it has been the case that house purchasing among the young in our cities has become the realm of the Ross O'Carroll Kellys and the Ivor Itchdaddys while those who are really in the 'middle' have instead had to contend not only with being priced out, but also the double blow of paying out rents which are now higher than the mortgage payments on those loans they no longer qualify for.

These priced-out youngsters, who presumably haven't had access to bank of mum and dad, will in particular be festering at Mr Varadkar's comments this week, however true they might be. But also stinging will be their parents. Those who have long believed themselves to be middle class but simply cannot make up €90,000 to hand up to three offspring (not an uncommon family size) will not be happy.

Still more custodians of the bank of mum and dad with expectant adult children will be seething that Leo is enforcing the myth of entitlement that already exists among some Irish youngsters - that it is 'normal' and 'expected' to have mum and dad pay a deposit on a house as well as everything else. Today plenty of couples in their fifties and sixties will be wringing their hands over the hard -saved nest egg they hoped would provide a decent retirement. Now their adult children want it. Are they bad parents if they don't hand it over? They shouldn't be tormenting themselves.

An election is coming which will be driven by houses and healthcare. Many of those voting will indeed realise that it's now normal for those who can buy houses to get deposits from the bank of mum and dad, but also that it is their Government that helped make it that way.

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