Cost-of-living sees bank of mum and dad left empty-handed
Soaring mortgage repayments and cost of living pressure are leaving kids unable to pay back home buying help.
Parents are increasingly being left empty-handed after loaning money to their kids to buy a home as repayments to the Bank of Mum and Dad are moved down the priority list.
Family law specialist Will Stidston has noted an increase in the number of matters disputed between parents who have advanced, gifted or loaned money to an adult child and their partners, largely due to cost of living pressure, 13 interest rates hikes in 18 months and divorce.
“I’m seeing more (disputes) in the last six to 12 months than I’ve seen in the better part two decades doing this,” said Mr Stidston, principal at law firm Barry Nilsson. “With the increase in interest rates, the money that was previously able to go to repayment of the Bank of Mum and Dad is either being focused entirely on the (mortgage-lending) bank, or a combination of the bank and living expenses.
“If suddenly a big chunk of money goes back to one of the adult child or the spouses, parents, there’s a lot less to be divided and so that’s where it’s becoming more acrimonious.”
Australian parents are estimated to have injected $2.7bn into the housing market, with a recent analysis by investment bank Jarden estimating 15 per cent of first-home buyers had been supported. Of those, two in the three were offered cash loans or gifts, while the remainder are in guarantor loans.
The Bank of Mum and Dad is helping more than ever, said Lendi chief investment officer Sebastian Watkins, with a “massive increase” in the number of guarantor loans being written in 2023.
He said it was becoming harder for young people to save a deposit with stagnant wages, but at the same time, many were having trouble accessing equity.
“Typically, it’s get the deposit from the Bank of Mum and Dad, let the capital appreciation in you house rise. Then with that equity, you refinance and cash that out, and you say thanks, here’s your money back,” he said. “Rising rates mean they may have realised the equity but the ability to refinance it is all but gone.”
Mr Stidston warned parents to ensure they have sought legal advice and created a financial agreement before awarding their well-intentioned loan or gift.
“We’re seeing the Baby Boomers wanting to start the transition of intergenerational wealth … but forewarned is forearmed,” he said.
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