By John Collett
The portion of first home buyers receiving financial assistance from their parents has hit a record high, as soaring house prices push up the deposit needing to be saved beyond the reach of many young buyers.
The percentage of first-timers tapping into the bank of mum and dad for help to get a foot on the property ladder has nudged past the previous high set in the wake of the 2017 property boom.
The average financial contribution of parents is just under $90,000 – about the same as in 2017.
About 60 per cent of first home buyers are receiving assistance from their parents to buy a home.Credit: Fiona-Lee Quimby
Martin North, founder of Digital Finance Analytics (DFA), estimates that just over 60 per cent of first home buyers are receiving financial assistance from their parents
DFA figures show that total lending by parents makes them the ninth-largest mortgage lender, just behind Suncorp Bank. The numbers are based on a rolling survey of 52,000 households conducted by the researcher.
North says there is a positive correlation between rising prices and parents assisting their children to get into the market. When prices go up, parents feel wealthier and are more willing to help out, but when prices fall they are more reluctant, as they worry whether they are going to have enough money for their retirement.
When property prices boom, first-time buyers fear they will miss out on ever owning their own home if they leave it too long to get into the market, he says.
Christian Stevens, senior credit adviser at mortgage broker Shore Financial in North Sydney, says many first-time buyers he sees are getting help from their parents – whether small or large.
“It may be $10,000, $20,000 or $50,000, but there is definitely a large portion of first home buyers that are getting a hand from mum and dad,” he says.
“It is often just topping up, so that the first home buyer gets to a lower loan-to-valuation ratio, so that they do not have to pay expensive lenders’ mortgage insurance,” he says.
The insurance, which usually must be taken out by borrowers with a deposit of less than 20 per cent of the property purchase price, reimburses a lender for any shortfall should a property be re-possessed and sold for less than its outstanding mortgage. It can cost many thousands of dollars.
Under the federal government’s First Home Buyer Deposit Scheme, first-timers can put down a deposit of just 5 per cent and avoid having to pay the added impost of the insurance.
Since the start of the scheme a little more than a year ago, 20,000 places will have been offered by the middle of this year for the purchase of new and existing homes. A further 10,000 places are expected to be added from July 1.
David Thurmond, principal of Mortgage Choice in Berwick, Victoria, says the number of loans to first home buyers he is seeing where parents go guarantor has doubled on previous years to about 10 per cent.
DFA’s North cautions that those who have received assistance – whether as a gift or a loan from their parents – are more likely to fall behind on repayments, or to default, as they have not experienced the financial stringency required to save a home deposit by themselves.