Five ways the Bank of Mum and Dad helps their kids into housing

One of the nation’s 10 largest lenders, the Bank of Mum and Dad is in demand. Here are five ways parents can help.

As home ownership slips further out of reach for many young Australians, the Bank of Mum and Dad is increasingly offering help to children.

Researchers say about 30 per cent of first-home buyers now receive money from parents to help out, and the Bank of Mum and Dad is estimated to be one of the nation’s 10 largest lenders.

“We’re certainly seeing more parents and grandparents helping their children and grandchildren with the purchase of a first home,” says People’s Choice Credit Union spokesman Stuart Symons.

There are several ways to help, some without handing over money, and parents are being urged to understand the benefits and pitfalls.

1 CASH HELP

Symons says the most common assistance is helping with deposits.

“While there are a range of government schemes which help reduce the necessary deposit to just 5 per cent, that can still be difficult to save – especially when you are paying rent at the same time,” he says.

New research by LocalAgentFinder shows 28 per cent of parents say they are willing to gift money as a deposit, while 26 per cent are willing to lend money.

LocalAgentFinder CEO Richard Stevens says the research found that many Australians want the government to do more for first home buyers and housing affordability.

“While the problem persists, most parents are willing to step in to support their children,” he says.

“It appears that the bank of Mum and Dad will continue to be a significant force in the economy.”

People's Choice Credit Union spokesman Stuart Symons says the earlier you start, the better.

2 GOING GUARANTOR

The LocalAgentFinder research found 26 per cent of parents are happy to guarantee their child’s mortgage.

This practice has surged in popularity and usually involves parents using part of their own home as extra security for the loan. It doesn’t cost the parents money but there is a risk they will have to pay back the debt themselves if their child cannot make the repayments.

Symons says providing a family guarantee “helps with the deposit and insurance”.

“Just what parents can do depends very much on their own circumstances, so we would always suggest you consider getting professional financial advice so you can provide the help you want in the best way and avoid nasty surprises,” he says.

3 SHARING THE SAVINGS

Scraping together a deposit is tough, especially when other living costs are rising twice as fast as wages.

Some parents charge board once their children start working but save that money in a separate account to eventually go towards a deposit, while others match their children’s own savings dollar-for-dollar to double the deposit funds.

“Thinking longer term, the earlier you start saving the better, which is true for both parents and children,” Symons says.

“The deposit hurdle is going to be a lot smaller if everyone’s been working towards it for five or 10 years.”

4 INVESTMENT TEAMWORK

It’s increasingly common for young adults’ first property to be an investment, where they have tenants helping them pay their mortgage while they still live at home.

Symons says some parents buy an investment property “with the long-term goal of selling or passing it on to their children sometime in the future”.

Other parents may decide to be joint owners to smooth out an investment property purchase, then allow their children to receive all future capital gains.

5 VITAL SUPPORT

For some, the most important help is providing motivation and emotional support.

“Make sure you’re aware of all the relevant federal and state government programs, and speak to your bank to understand their products and see what they are willing to do,” Symons says.

Tina and Don Carter helped their children into housing. Picture: Keryn Stevens

Stevens says parents can assist with research, planning and examining the options.

“Really support them in that research phase to set up the right behaviours,” he says.

“Ensure they set up a savings account ASAP. You have to start somewhere to get on that first rung.”

ENJOY IT NOW

Tina Carter and husband Don helped their adult children with first-home purchases because “we wanted them to have the money while we were alive so we could see them enjoy it”.

“We wanted to see the girls in their own environment, and it is important to have a roof over our grandson’s head,” she says.

“Kids these days have a different outlook – their priorities are somewhat different from ours.

“Since the education system changed, kids are about 10 years behind where we were. We were out working at 16 and had the luxury of building our nest eggs early.”

Originally published as Five ways the Bank of Mum and Dad helps their kids into housing