One in three parents give children home deposit

EXCLUSIVE: One in three first-home buyers is given a deposit by their parents to purchase property in a trend lenders say is booming.

EXCLUSIVE: One in three first-home buyers is given a deposit by their parents to purchase property, in a trend that lenders say is booming.

Mums and dads are collectively paying out $122 million a year to shoehorn their children into home ownership, with at least a third of first-time buyers spared the financial difficulty of saving for a full deposit.

And a whopping 80 per cent are given some form of financial assistance by their parents to buy real estate, whether it's a deposit, interest free loan or acting as a guarantor, according to lender research.

MARK BOURIS: Let’s bust those mortgage myths now

OWNERSHIP A PIPEDREAM: Families renting for longer

With house prices rising at about 10 per cent a year, lending criteria tightening since the GFC and investors pushing first-time buyers out of the market, more parents are willing to stump up a deposit.

Andrew Hill, a partner at Brisbane-based Expert Lending, said many Baby Boomers have adult children who are now at the age when houses and family of their own are the priority.

Mr Hill said up to 30 per cent of the mortgage broker’s first-home applicants required their parents’ help to get them over the line with deposits, a figure echoed by banks, and real estate agents in Brisbane, Sydney and Melbourne.

A decade ago that figure was less than 10 per cent, and 20 years ago almost no parents assisted with deposits.

“Since the GFC, deposits as gifts have taken over first-time buyers relying on equity in their parents’ home to get a loan approved because it’s a lot financially cleaner for the family if things go pear shaped, such defaults on the mortgage or divorce,” Mr Hill said.

He said benefits included avoiding expensive lenders mortgage insurance (LMI) and the buyer being able to enter the market years ahead of those who had to save for deposit themselves.

Sydney real estate agent Sue Tam from LJ Hooker in Kellyville — where the house prices start at about $750,000 — said it was not unusual for parents to gift a deposit.

“It has become more common for parents to help out, but it’s hard to put an actual figure on it as not all first-home buyers tell you they are being assisted with a deposit so it actually may be more than one in three,” Ms Tam said.

With a little financial help from mum and dad ... Ian and Leigh Putteril at their new home in Sydney.

Sydney newly weds Ian and Leigh Putteril are among those fortunate first-time buyers, having purchased a property last month in Como with family help.

Ian, 30, said financial assistance from both of their parents had meant the difference between buying a house over a unit.

“Leigh’s parents allowed us to use equity in their home so we didn't have to pay lenders mortgage insurance, and my parents gave us a gift of money to help with the deposit,” Mr Putteril said.

“It was tricky to ask them but we knew they were happy to help us out when it came to a property, and it has been a great outcome.

“With their help, we were able to get in the market sooner and buy a house over a unit.”

Meanwhile, ING Direct said it had experienced an increasing number of first-home buyers seeking help from relatives to buy property

ING Direct spokesman John Arnott said the lender recorded a 15 per cent (year on year) increase in customers submitting gift policy statuary declarations, which confirm a gift is not repayable.

“We’re delighted to see customers take a prudent approach to entering the home market by building up the biggest deposit they can,” Mr Arnott said.

“A larger deposit is always a good thing for first homebuyers so that they do not put themselves under too much pressure in meeting repayments.”

ING research shows that 80 per cent of parents are prepared to provide some form of financial support to get their children on the property ladder.

ING’s Kids Living at Home report also found that 46 per cent were happy to relinquish their empty-nest lifestyle, take less expensive holidays and defer purchases to cope with the financial responsibility of having the children live at home to save for a property.

First homeowners pushed out ... Investors have been the dominant force in capital city real estate.

John Symond, Executive Chairman of Aussie Home Loans, said gifting a deposit is a good way to limit parents’ financial exposure.

“We are noticing more parents are helping out their kids with a deposit in Sydney, as prices continue to rise and get more out of reach for the first homebuyer,” Mr Symond said.

He warned that other forms of financial assistance could put the parents’ home at risk.

“A common process is to provide a loan guarantee, but parents need to get a legally documented loan agreement with their child and get professional advice to go down this path.

“I believe the best way to give a helping hand is for parents to provide a one-off gift to their kids in building up a deposit.”