Parents are lending, giving, or underwriting record amounts for deposits to help their adult children buy their first home, making the so-called Bank of Mum and Dad one of Australia’s biggest mortgage lenders.
According to Finder’s First Home Buyers Report 2021, which surveyed 1,028 first home buyers, one in three (32%) rely on their parents for financial help, either with a deposit, loan or full purchase price.
That’s equivalent to 3,779 Aussie “kidults” who are relying on their parents for housing costs every month.
Finder’s research found that the so-called Bank of Mum and Dad – the colloquial term used to describe parental funding – is now Australia’s ninth-largest mortgage ‘lender’, lending or giving $29 billion in the past 12 months.
Sarah Megginson, home loans expert at Finder, said that a handout from mum and dad is sometimes the only way younger buyers can enter the market.
“Saving for a deposit is still one of the biggest struggles for those looking to take their first step on to the property ladder, especially if you’re paying rent at the same time.
“House prices in Australia increased by 2.8% in March alone, the fastest rate of appreciation since October 1988, so it’s not surprising to see this many parents helping their children get their foot in the door.
“With property prices showing no signs of slowing down, and interest rates at an all-time low, it seems many parents feel a responsibility to give their kids a financial leg up,” Megginson said.
According to the survey, almost one in four (23%) adult children buying their first home get help with the deposit or loan repayments from their parents. For 12% of first home buyers, they receive help with the full purchase price.
Millennials are the most likely to have asked their parents for help to buy a home (33%).
The research found that men (36%) are more likely to have received parental contributions (36%) than women (27%).
Megginson said that while it’s great that parents want to help their kids get on the property ladder, it’s essential they understand the cost of ownership as well.
“Buying a home is a huge responsibility that goes beyond the cost of buying. Aside from the initial deposit, there’s also council rates, water and strata levies and insurance, plus the cost of repairs when something breaks.
“You can’t always rely on mum and dad to come to the rescue. I’d encourage all parents to set firm financial boundaries with their adult kids, so they know when to help themselves.
“Teach them how to save, how to compare bank accounts and how to set up their own emergency fund.”
Megginson advised that too much generosity from parents could hurt their own standard of living in retirement.
“Supporting your kids is how many see the job of a parent, but mum and dad need to make sure they aren’t leaving themselves vulnerable in the process.”
How parents can safeguard their financial position:
Protect your nest egg. Have your own funds that you don’t touch, even to help out your kids. You never know what life might throw at you, and it’s important to have financial back up just in case.
Make informed decisions. If you go guarantor on your child’s home, research all possible outcomes, good or bad. See a mortgage broker or financial planner together, to help you make the right decision. Your kids should understand that if they fall behind on their repayments you are financially liable, and your own assets are at stake.
Create a payment plan. If you lend money to your kids in the form of a “loan”, draw up an agreement first so repayment expectations are clear from the start.