Controversial home loan lender grabs massive market share

A formidable and controversial new home loan entity has seized a massive slice of the homebuyer market. Can it help you?

OPINION

For many years, there have been four major banks. Westpac, the CBA, the NAB and the ANZ.

Well, now, the big four has become the big five thanks to the rise of our newest major lender: The MAD, otherwise known as The Bank of Mum and Dad.

We’ve joked about it for decades, but times have changed from when the stereotypically bad with money son or daughter begs a few thousand dollars from their parents just to get started, with a shaky agreement to pay back the money later.

These days the dire situation for people trying to afford housing is no laughing matter.

Young buyers now face the reality that if their parents aren’t rich, they may never be able to purchase property in their local capital city.

New research by Digital Finance Analytics has revealed the seismic shift in recent times.

The study shows the percentage of first homebuyers seeking help from their parents has jumped from just 3 per cent 14 years ago, to 59 per cent now.

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I’ll pay you back mum and dad, I promise.

So not only is The MAD a real and formidable entity, but it’s actually seized the majority slice of the first homebuyer market share.

PARENTAL LOANS EXPLODE

Since 2010, the average parental loan size needed for a home deposit has gone from $23,000 to $107,000.

And you can understand why.

At the end of 2009, the median house price in Sydney was just $420,000. Now it’s $1.4 million according to the latest PropTrack data.

Home values have gone through three growth cycles since then and so has the wealth being held by The MAD.

It’s little wonder then that so many young families have been fleeing the harbour city and other capitals in droves to set up shop in the regions or interstate.

No number of events on the Opera House steps, Harbour Bridge fireworks displays or visits to Bondi Beach on the weekend will make putting yourself through extreme mortgage or rental stress seem worth it.

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I can’t believe they actually said yes.

BIG ISSUE WITH MUM AND DAD’S DOUGH

One big problem with The MAD of course, is that parents haven’t been properly trained in responsible lending and, unlike a real bank, are likely to make decisions based on emotion rather than by plugging numbers into an increasingly sophisticated risk-mitigating algorithm. They also generally have their loans tied to a single other asset.

So if the market takes a turn for the worse, The MAD is a big chance of going under. Will it get a bailout package? Or will first home buyers be forced to sell their properties for a bargain to investors, who may then rent them back to them at an exorbitant price.

We actually did it, now how are we going to make our crippling mortgage repayments?

Wait, help may be on the way even as we speak, because we have another new bank gaining market share.

Traditionally, parents were the only ones helping their children save for a deposit, but now, with Aussies living longer and accumulating more wealth, more loans are coming from second tier start-up lender The NAP … The Bank of Nan and Pop.

This bank has largely been used for school fee funding in the past, but that’s no longer the end of it I’m afraid.

Those school kids will eventually grow up to be 40 years old and ready to buy a home of their own.

So now, while around 80 per cent of deposit help comes from The MAD, The NAP has grown in recent times to reach an 11 per cent market share.

So that might be your next option. Just don’t expect The NAP to offer online banking.