‘Bank of Mum and Dad’: Parents’ cash behind a third of first-home buys

Apr 16, 2021
The 'Bank of Mum and Dad' is alive and well as Australia's ninth largest 'lender'. Source: Getty

Australian property prices are rising at their fastest rate in 33 years and it seems the “Bank of Mum and Dad” is helping heap fuel on the fire, forking out $29 billion for their children’s first homes in the past 12 months.

According to Finder’s First Home Buyers Report 2021, the “Bank of Mum and Dad” is Australia’s ninth largest mortgage “lender”, with one in three respondents relying on their parents for financial help, either with a deposit, loan or full purchase price. It’s estimated that parents around the country have lent or given $29 billion in the past 12 months.

The report surveyed 1,028 first home buyers and found that, interestingly, men were 36 per cent more likely to ask for a loan/gift of property than women (27 per cent), and millennials were the most likely to have asked their parents for help to buy a home (33 per cent).

According to the survey, almost one in four (23 per cent) adult children buying their first home get help with the deposit or loan repayments from their parents, while a lucky 12 per cent of first home buyers receive help with the full purchase price.

While it’s great that parents want to help their kids get on the property ladder – and may be the only way younger buyers can enter the market – Sarah Megginson, home loans expert at Finder, said it was important to set strict financial boundaries and ensure your loan or gift won’t leave you vulnerable or hurt your own standard of living in retirement.

“Saving for a deposit is still one of the biggest struggles for those looking to take their first step onto the property ladder, especially if you’re paying rent at the same time,” she said. “House prices in Australia increased by 2.8 per cent 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. 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.”

If you are thinking of opening the “Bank of Mum and Dad”, there are a few key things to consider. Firstly, whether it is a gift or a loan and the details of the repayment plan. It is important to have an open and honest conversation with your children and document the agreement in writing. The written agreement should include details of any repayment plan, the interest rate you intend to charge and what would occur if your child defaults on their loan to you or the mortgage.

Secondly, if it is a gift, you will need to assess if it falls under the threshold permitted under the Age Pension income and assets test. The limit sits at $10,000 annually and a maximum of $30,000 over five years. If you exceed these limits, any extra amount will be regarded as an asset for five years after it has been gifted, meaning even though you gave it away, it’s still counted as something you own.

As an asset, it will count in both the assets test and income test, which are used to determine how much Age Pension you will receive each fortnight. Therefore, with more assets in your possession, you could ultimately end up with a reduced welfare payment.

Thirdly, it is important to assess the impact the gift or loan will have on your retirement, and to make sure you’re not running the risk of cutting yourself short or giving up any financial freedoms or flexibility that you would have enjoyed in your later years. If the gift will impact your retirement, it’s important to ask yourself if it’s worth it.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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