Bomadland: How the Bank of Mum and Dad helps kids buy homes

May Rostom

On average, parental contributions help children buy homes four years earlier than those without them. Out of every 100 new homeowners below the age of 30, 16 will have had help from ‘the Bank of Mum and Dad’, or Bomad for short. That rises to one in four new homeowners under the age of 25. 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. Anecdotes about cash assistance from Mum and Dad have recently been backed up by evidence from Legal & General, which implies Bomad plays a non-trivial role in the housing market. I attempt to investigate its prevalence.

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A question of interest: Is UK household debt unsustainable?

Lewis Kirkham and Stephen Burgess.

UK household debt is high relative to income. But is it “unsustainable”? Some commentators say “it is”; others say “there is no reason to worry”. To investigate, we build a simple model of the economic relationships between household debt, house prices and real interest rates which we believe must hold in the long run. In our model there is no single threshold beyond which debt suddenly becomes unsustainable, but we argue that household debt should be broadly sustainable under any rise in real interest rates of up to about 2 percentage points (pp) from current levels. We also show that falling real interest rates may have contributed around 20-25pp to the rise in the household debt-to-GDP ratio since the 1980s.

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Falling off a cliff: what happened to UK corporate debt? A transatlantic comparison.

Christian Schnittker.

Following the financial crisis, net corporate financing has exhibited a similar overall pattern in the UK and the US. But the composition of that financing has been very different – with the net debt stock of UK non-financial corporates falling by more than 20% of nominal GDP. By contrast, in the US the fall was only 10%, and around half of this has since been regained. Why did the two countries’ experiences diverge so much after the crisis? In this post, I argue that the root cause of this divergence was a fall in UK corporates’ demand for debt, rather than a hit to credit supply. Business cycles, and credit conditions appear to be similar in both countries, but in the UK there has been lower demand for corporate gearing from firms, a weaker recovery in M&A activity, and fewer share buybacks than in the US.

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A lifecycle story of housing debt in Blighty

May Rostom.

Ask most young Britons about the housing market and they’ll undoubtedly have a personal anecdote to share. They may tell you about their struggle to get on the ladder, or how they’ve had to make ever larger concessions such as moving to the fringes of town. Or, they may tell you of their plans to take on a mammoth mortgage because the alternative—waiting a little longer—means that what is in reach now will likely be out of reach soon enough. This post empirically underpins what has been anecdotally obvious for some time: that the burden of debt is disproportionately falling on the young, and much more so than any other time in the last 20 years.

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