01.17.2024 Buying Tips

The Bank Of Mum And Dad

The Bank Of Mum And Dad

Help from parents makes home ownership up to 90% more likely, according to a recent report.

This isn’t an easy time to be a first home buyer.

Research from Canstar shows that today’s would-be home buyers need to earn up to $90,000 more than they did in early 2022 just to afford to buy a median-priced Sydney home. Here in Sydney’s eastern suburbs, home values are much higher still.

But help from parents makes home ownership up to 90% more likely, according to a recent report. So it’s little wonder then that so many first home buyers are turning to the so-called ‘Bank of Mum and Dad’.

But how common is parental assistance for today’s first home buyers? And, if you’re considering offering financial help to your children (or receiving it from your parents), what should you know first?

Here’s our guide to everything you need to know about the Bank of Mum and Dad when it comes to Sydney’s eastern suburbs property market.

A changing demographic of first-home buyers

Across Australia, the average age of a first home buyer is now 36 – that’s up from 24.5 at the start of the Millennium.

In Sydney’s East, we see many first-time buyers who are much older still. It’s not uncommon to see first-home buyers who are well into their forties or beyond. These buyers are usually professional, established in their careers, and willing to spend a lot to secure their first home.

Research from the University of Sydney and the Australian Housing and Urban Research Institute (AHURI) titled Transitions into Home Ownership: A Quantitative Assessment found that as people spend longer in higher education and delay starting a family, home ownership among younger people has fallen.

While 63% of people born between 1950 and 1954 had bought their first home by the time they were between 30 and 34 years old, for those born between 1985 and 1989 it’s fallen to just 45%.

The report also highlighted that the probability of owning a home declined in a rising market, with a fall of 2.5% to 3% for every $100,000 increase in house prices (something we’ve seen a lot of in recent years).

Unfortunately, it also found that renters who haven’t bought a home by their early 30s were less likely to become homeowners later in life (compared to their parents’ generation).

According to the report, one factor that makes homeownership much more likely is help from the Bank of Mum and Dad. Each extra year spent living with parents increased the chances of buying a home by a huge 30 to 40 per cent, but a gift of $10,000 or more made a first home purchase around 90% more likely.

How common is the Bank of Mum and Dad?

Australian Housing Monitor research reveals that in the 1980s around 15% of first home buyers received financial assistance from their parents. Today, that figure is close to 40%.

This led to the Bank of Mum and Dad becoming the nation’s ninth-largest mortgage lender in 2021 (ahead of big names like AMP and HSBC), according to Digital Analytics.

Figures released by the AFR in late 2023 show the Bank of Mum and Dad has “injected more than $2.7 billion into the property market in the past year as around 15% of borrowers tap their parents for financial help”.

Weekly Market Insight
Receive Ben Collier's Weekly Market Insight directly to your inbox.
Sign Up
  • Enter your details to receive the report
  • Enter your details to receive the report
  • Enter your details to receive the report
  • This field is for validation purposes and should be left unchanged.

It estimates that on average kids received $92,000 from their parents for the purchase of homes.

Beyond simply helping with a deposit, Finder says that 7% of parents help their children make mortgage repayments, while another 7% go guarantor on their children’s home loans.

What to consider when borrowing from the Bank of Mum and Dad

The Bank of Mum and Dad can take many forms: a gift, a bequest, an early inheritance, rent-free accommodation to allow saving, help with repayments, a private loan, or a guarantor loan.

There’s little doubt that downsizers are driving this trend.

We see a lot of downsizers, who sell their home with a plan to contribute money towards their child’s property. We also see an increasing number of parents buying property that acts as an investment property until their child is old enough to move in.

Other assistance for first home buyers

The Bank of Mum and Dad isn’t the only source of boost payments for first home buyers.

A variety of government grants and schemes also offer assistance to eligible first home buyers, including the First Home Owner’s Grant and the First Home Super Saver Scheme.

Last year the threshold for transfer duty relief under the First Home Buyer Assistance Scheme, was lifted to $1 million while homes under $800,000 were eligible for a complete exemption.

This brings into play many more properties in our local area, particularly for those looking to live in an apartment. Meanwhile, the First Home Guarantee Scheme makes it easier to get onto the property ladder by helping first home buyers borrow 95% of a home’s value without having to pay expensive lenders mortgage insurance.

In short…

While the Bank of Mum and Dad may be common, it’s not without risk.

For instance, if a child gets in over their head and can’t make mortgage repayments, a parent guarantor could be forced to sell their home.

That’s why it’s very important that all possible financial implications and consequences for both parties are considered.

If you’re planning on lending or borrowing from the Bank of Mum and Dad we suggest you seek independent financial advice to avoid any issues or complications (financial or relationship-wise).

Are you looking to buy your first home in Sydney’s Eastern Suburbs? We can help. Get in touch with my team today.