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‘Bank of Mum and Dad’ influence goes well beyond the property ladder

John Fitzsimons
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John Fitzsimons

Those with parents who have a higher income enjoy far more benefits than merely a helping hand onto the housing ladder.

That’s according to new research from Hargreaves Lansdown, which dug into the impact that the ‘Bank of Mum and Dad’ has, even when the parents aren’t handing cash directly to their children.

For example, those whose parents owned their own home are more likely to be financial resilient, with 39% having money left over at the end of the month, compared with just 24% of those whose parents did not own their own home.

There is also a difference in having enough savings (75% of those whose parents owned their home, compared with 52%) or being on track for a moderate pension income (54% against 29%).

Growing up in a household where parents worked was also found to make a difference. The Hargreaves Lansdown study found that 68% of those with a working mum were more likely to have enough in savings, compared with 41% of those without. Similarly almost two in four (39%) now own their own home, compared with just one in five (19%) of those without a working mum.

The firm noted that the reality is that wealthier parents are more likely to be able to pass money onto their children, allowing them to build their own saving nest egg or put down a deposit on a property.

Support goes beyond cash

However, Hargreaves Lansdown also pointed out that the support offered by the Bank of Mum and Dad goes beyond cash itself. It noted that having parents with sufficient money offers an element of security, meaning they can take more risks knowing that their parents could support them if things go wrong.

There may also be support getting into professional jobs, either through demonstrating workable paths into these roles or even putting the child in contact with someone who works in that field.

The study pointed out that those whose parents remained in education for longer are able to offer more academic support during the child’s younger years, with parental education therefore playing a role in your later earning potential.

Unsurprisingly, the Bank of Mum and Dad has a big role to play in the housing market too. Sarah Coles, head of personal finance at Hargreaves Lansdown, explained: “When it comes to buying property, if your parents rented, you’re more likely to rent as an adult. There’s no doubt this owes a great deal to the fact that your parents have no home to remortgage in order to provide a deposit for you.

“However, it also owes something to the fact that we learn what’s normal from our parents, and can often follow their example.”

Taking on unaffordable debt

It’s not all positive, however. Hargreaves Lansdown noted that people with wealthier parents can have issues when it comes to taking on debt.

Coles said: “How affordable our future debt payments are tends to be inversely proportional to income, because wealthier people feel more confident they’ll be able to pay their debts off, so they borrow more and do so at a variable rate of interest.”

For example, of those whose dad went to university, 21% have debts that will be affordable in the future. This grows to 35% among those whose dad left education before they were 15.

The Bank of Mum and Dad is growing

In recent years, the Bank of Mum and Dad has become an ever more important player in the property market. Rocketing house prices has made it more difficult for aspiring buyers to save a sufficient deposit, meaning they have had to rely on financial support from loved ones.

Recent analysis from estate agent Savills suggested that gifts and loans from parents worth almost £9 billion were made in 2022, with the expectation that this figure will increase in the years ahead.

However, Skipton Building Society recently launched a 100% mortgage, removing the need for buyers to rely on help from loved ones in building a deposit, potentially opening the door to home ownership for those without wealthy parents.