How ‘Bank of Mum and Dad’ almost outstrips Suncorp in first home-buyer loans
The spiralling costs of housing has meant that first-home buyers were borrowing as much as $89,000 from their parents, according to Data Finance Analytics.
It now takes a decade to save for a median priced home (file photo)
It found the “Bank of Mum and Dad” was among the top 10 lenders in Australia, just behind Suncorp and one place ahead of the Bank of Queensland.
About $29 billion has been loaned out to the next generation and in many cases, it was in the form of loan guarantees.
The totals are a big leap from just over a decade ago when only about 3 per cent of first time buyers received funds from their parents and the amount averaged about $23,000.
The boost had most likely blown out because of the escalating prices in Sydney and Melbourne, according to Canstar finance expert Steve Mickenbecker.
But he said there was a big difference in attitudes between Millenials and Baby Boomers. He said only about 14 per cent of Baby Boomer parents believe they had an obligation to help buy a property, but 33 per cent of Millenials believe their parents have an obligation to help them buy a property.
“So there are going to be some pretty disappointed people out there,” he said.
He said the discrepancy was because a lot of Baby Boomers have been bombarded with news that they did not have enough to fund a comfortable retirement.
“They are approaching retirement and thinking it’s maybe not enough and what am I going to do: put $100,000 into my kids’ property when they have 40 years of earnings ahead of them or keep it when I have only three or four years of earning,” he said.
“They (the children) have almost no prospect of repaying it in that time.
“The major risk is (the parent) could be left high and dry in retirement and the children won’t be able to help.”
He said in the current booming property environment there was a fear of missing out which was likely to increase so the Bank of Mum and Dad was likely to be used more often.
“We do have a more affluent society and people have more in savings to help their kids,” he said.
“They can give the bank a guarantee for say 20 per cent for the deposit and the bank will want a security and they can back it up with a term deposit but for most people it will be through a mortgage. I don’t think that’s always a good idea.”
He said a good alternative for parents was to allow their children to live at home rent free to save for a home.
He said it was a good idea for parents who did provide funding to make sure their expectations about repaying the loan were clear and written down.
