From professional housing publications to worried social theorists and city councils, we have today a lot of justifiable hand-wringing about the plight of first-time homebuyers, millennials, renters, low-income, seniors — all sorts of groups confronted with difficulty buying a home.
The toughest single problem, ahead even of unstable “gig-employment:” where will buyers find their first down payment?
The most common answer is delivered with derision or dismissal: the bank of Mom and Dad. Not everyone has parents with the wherewithal, or the willingness.
And it’s not terribly pretty that affluent parents would perpetuate affluent offspring. No matter what the social issue, we here in the States usually think that we have it worst. Special, we are, if only in our search for equality of opportunity, if not outcome.
Look elsewhere, outward.
BOMAD
This week the UK Telegraph reported results of a study by Legal & General Life Insurance. In the U.K. — a land for a century firmly opposed to inheritance by class structure — family assistance to offspring for home purchase this year will reach $7 billion, underpinning purchases worth $108 billion. The U.K.’s population is one-fifth of ours, so real money, the equivalent of a U.K. top-10 mortgage lender.
Family assistance by the Bank of Mum and Dad is so common in the U.K. that it has a name: “BOMAD.” One-quarter of U.K. buyers receive some family assistance, and one-half of those aged under 35.
I do not know of reliable assistance statistics here, but gifts and co-signatures are certainly common. Here in the states we long ago (FHA, 1934; VA 1944) socialized the cost of homebuyers who have little or no down payment. The cost of the resulting higher rates of default are spread across all borrowers using the loan type. Everybody pays the same FHA mortgage insurance.
What are the ethics of BOMAD? Is there something wrong with a society in which youth must rely on family cash to buy a home?
Planet Earth today has about 7.4 billion human dwellers. That’s five times the 1900 global population, and tripled just since 1950. Every good piece of land has somebody on it, and several who would compete to own it, the more the better the land.
The U.S. and the British Commonwealth owe to English common law and practice nearly 1,000 years ago the notion of “fee absolute” ownership of land, which cannot be disturbed even by the sovereign and may be freely transferred.
As the globe gets more crowded, all the more competition for the good stuff. It seems perfectly reasonable that the parent and grandparent beneficiaries of increasing scarcity should pass on some of the winnings to offspring. And also that offspring would have a tougher and tougher time in the competition and require help.
And I cannot suppress a smile that the name for assistance has appeared in the place where real estate profitability first flourished.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
