Australian house prices: Reliance on the ‘Bank of mum and dad’ is rising, but can they afford a rate hike?

Parents are taking it upon themselves to secure a spot on the property ladder for their desperate children amid soaring housing prices. But experts say the move is not without risks.

Parents are using the roof over their own heads to secure a spot on the property ladder for their desperate children amid soaring housing prices.

More than 150,000 Australian mortgage holders drew down on their home loans over the past 12 months to financially support their adult kids’ path to home ownership, according to new research from digital mortgage broker True Savings.

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The report’s findings demonstrated that the “Bank of Mum and Dad” is a serious financial fall back for thousands of young Australians.

In early 2020, even prior to the pandemic-propelled property boom, research from mozo.com.au declared the Bank of Mum and Dad already held the title of the fifth biggest home lender in the country behind Australia’s big four banks.

Chipping Norton in NSW is one of the top suburbs where the Bank of Mum & Dad is propping up the market.

Parents reportedly lend an average of $73,522 (or a collective $92 billion) to help their children buy a home. That trend is continuing to grow along with property values.

In 12 months of booming real estate prices across the country, the national median dwelling value jumped 22.2 per cent to $698,170.

However, couple that with an increased loan serviceability buffer making borrowing just that little bit harder, plus declining affordability for many first-home buyers, and families are more financially frustrated than ever.

Pete Steel, founder and CEO of True Savings said the Bank of Mum and Dad had become a “force to be reckoned with”.

“I’m sure the number of parents helping their children is much greater than what our research shows if you add in those giving pure savings, or going guarantor as well,” he said.

“It’s really surprising how many people are taking equity out of their own family home to kickstart their kids lives. But you can understand why, it’s a very tough environment for home buyers, particularly younger people at the moment.

Pete Steel, founder and CEO of True Savings. Picture: Supplied

“I think this increase of financial help is a reaction to the really intense property market and the fact that getting a deposit together is accelerating away from wage growth; it’s getting harder, the gap is getting bigger so mum and dad are stepping in.”

The top 10 suburbs where the Bank of Mum and Dad has refinanced

Toowoomba, Queensland

Roxburgh Park, Victoria

Morley, Western Australia

Chipping Norton, New South Wales

Tarneit, Victoria

Camp Hill, Queensland

Bellbird Park, Queensland

Henley Brook, Western Australia

Deer Park, Victoria

Ascot, Victoria

On the flip side, Mr Steel said, this kind of family handout is simply an alternative to more traditional generational wealth transfers.

“Taking some money out of the family home to let the next generation get a better start, rather than waiting till they move out of their homes, isn’t necessarily a bad thing.

“Although it’s obviously difficult for those young people who don’t have a bank of mum and dad to rely on.”

Layla Zabel, 26, bought her first property recently with her parents’ help and admits without the assistance she might still be waiting.

Layla Zabel would still be waiting to buy her first home if it wasn’t for her parents’ help. Picture: Supplied

“I don’t think I would’ve been able to do it without them putting up the money. I would’ve probably had to wait another couple of years – or even longer.”

Ms Zabel said she had saved a modest deposit, but struck her hometown of Sydney of her buyer’s wish list of given the elevated property prices. Instead, she settled on a two-bedroom apartment in Melbourne’s East Brunswick.

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“Melbourne hasn’t had the same boom as Sydney and I did some market research and felt confident that it was a good place to buy. Luckily, even throughout the lockdowns I managed to keep a really great tenant in the property, which was good,” she said.

Roxburgh Park in Victoria was the state’s highest for refinancing from the bank of mum and dad.

Although Ms Zabel had a 10 per cent deposit saved, she didn’t meet her lender’s 20 per cent requirement so had a discussion with her parents about what strategy would work for everyone – including her other siblings who would equally get a financial leg up.

“Whatever they would help me out with, we decided they would help them out as well. That’s why they didn’t give me a lump sum. I paid the deposit and didn’t actually borrow any cash from them at all,” Ms Zabel explained.

She said in order for her to avoid paying lender’s mortgage insurance to cover the extra 10 per cent needed to meet the required 20 per cent deposit, her parents used their home and went guarantor on her new loan.

While the monetary assistance from the Bank of Mum and Dad usually comes from the right place, Mr Steel said everyone involved should proceed with caution.

Real estate experts are noticing a trend in young Sydney house hunters getting help from the 'bank of mum and dad'. Mary with her children Ezekiel and Jasmine and parents-in-law Francisco and Maria. Picture: Toby Zerna

“Going guarantor is definitely not without its risks. Our experts talk customers through this because you’re essentially putting the family home on the line. I’d say going guarantor is actually higher risk in some ways, than drawing down on the equity, because you don’t just stand to potentially loose the deposit you’ve given the children as a bank of mum and dad, but you’ve put your family home at risk,” he explained.

Toowoomba was the number one city in the country for BMD refinancing.

“We want to ensure that if Aussies are looking to support children by drawing down on equity in their own homes, they are doing this with an innate understanding of what that means for them in regards to repayments, retirement and setting themselves up for success in the future,” he said.

“We also want them to consider interest rate rises, and ensure that all family members will be able to support the ongoing repayments of their home loans,” he said.