bank-mum-dad
The “bank of mum and dad” is worth and estimated $35 billion in Australia
  • 60% of first home buyers receive a financial boost from their parents
  • The Bank of Mum and Dad is Australia’s ninth biggest lender
  • The Bank of Mum and Dad comes with its own set of challenges

2021’s soaring housing market saw a mortgage lending spree which was a record year for Australia’s ninth biggest lender – the Bank of Mum and Dad. But now that interest rates are beginning to creep upwards, these parentally assisted lenders might be at a higher risk, according to a range of industry experts, including the National Property Group.

A survey conducted in May 2021 by Digital Finance Analytics found that 60% of first home buyers received a financial boost from their parents to put a deposit down for their home.

Martin North, principal at DFA explained that contributions ranged but the average was just under $100,000.

“The problem is of course any people just can’t get into the housing market unless they get help from their parents.”

Martin North, DFA Principal 

“If you’re fortunate enough to have a parent with savings or equity in their property, you can get that leg up. But a lot of people don’t have that. There is effectively a two tier market,” Mr North said.

The latest statistics from Aussie Home Loans indicate that first-home buyers represent 17.4% of all owner-occupier housing finance commitments.

Nigel Horne, Principal of Albury-based Nigel Horne Real Estate, has experienced the rise in regional property prices, and the impact this has on buyers.

“Throughout our dealings with buyers, family financial assistance to fund a deposit has been a factor,” said Mr Horne.

“Since the pandemic took effect in 2020, property values have increased significantly in our region. In my experience, demand has not slowed and there is still a shortage of properties.”

While the bank of Mum and Dad (BoMaD) might have fewer strings attached, it often comes with its own set of challenges.

“Our data identifies key markets across metro and regional NSW where home values are starting to fall, which increases the risk of negative equity for some previous purchasers,” said Don Harb, National Property Group COO.

“The LGA of Ryde has seen a 16.8% fall in property values. We’re also seeing slight dips in home prices in regional LGAs such as Queanbeyan.

“For BoMaD buyers and lenders these trends could signal that it’s time to assess their financial future.”

DFA’s Martin North explains that there are three major risks.

Risk of defaulting

BoMaD-backed buyers are estimated to be three times more likely to default in the first five years of homeownership according to Mr Martin.

“Banks might not ask the right questions to identify the source of these Seagull payments, the one-off payments. The underwriting might actually not detect the real financial situation of these houses, which is why they are more likely to have difficulty later,” he said.

As interest rates rise those in danger of defaulting could face more risk.

Risk of family conflict

Tapping into the Bank of Mum and Dad for a home loan can cause problems within families, as the old saying goes don’t mix blood and money.

“These agreements are often not well documented. Was it a loan? Was it not a loan? On what basis? Would you get paid back? What happens for example, if the marriage falls apart? What do you do about that? So there’s a whole bunch of issues and consequences.”

Risk for parents

“And then finally from the parental perspective, there are risks attached to it.”

The heightened property market filled many parents with confidence in their equity. Many were more willing to pull equity out of their own property to support their children’s property purchases.

As interest rates hike and properties show signs of easing, parents who have gifted or loaned money to their children could face some difficulties.

Which LGAs are most backed by the Bank of Mum and Dad?

Aussie.com.au has identified key Local Government Areas (LGA) that show high rates of parentally backed buyers

Parentally backed property hotspots in Sydney include Blacktown and Ryde. Across regional Australia, BoMaD markets include Queanbeyan, Albury, and Coffs Harbour.

Melbourne’s Sunbury, Moonee Ponds and Carnegie and regional Victoria’s Horsham are particularly parentally backed.

While rates of parentally backed buyers might be high at the moment the trend could change.

“This intergenerational transfer of wealth is a side effect of the massive ramp-up in home prices and the ultra low-interest rates. As the interest rates reverse, we may well see it changing,” Mr North said.

“As prices begin to ease back people may worry about the equity in their own property, and how that’s going to play out ahead.”

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