Bank of Mum and Dad report 2021: Property boom puts parents under pressure

Key report facts:

• Two thirds of parents helping kids purchase property feel they are under significant financial stress.
• A third of parents are offering support with no strings attached, while another 34% expect their child to pay back the money in some way.
• The average parental contribution to a child’s home deposit is now $70,000, with overall financial input climbing to an estimated $134,200.
• Parents are more likely to support their youngest children, and 22% don’t ever expect their kids to stop asking for financial assistance.
• In addition to property procurement, parents are also contributing cash to their kids’ education, car costs, insurance, furniture and other debt repayments.
  

Why are home buyers turning to the Bank of Mum and Dad?

Buying a home is likely one of the biggest financial commitments you’ll make in your lifetime – and it requires some serious dough. The average Australian home is now selling for $835,700, according to the latest Residential Property Prices index from the Australian Bureau of Statistics (ABS). 

This figure represents a 16.8% increase in price over the last 12 months, with steady price growth preceding that figure as well. With wage growth remaining relatively stagnant, this means many prospective buyers are taking on larger debt-to-income ratios. 

The last year has also seen many first home buyers entering the market, with record-low home loan interest rates and government incentives fuelling buyer enthusiasm. 

Despite the low-rate environment and various support schemes, rising property prices mean would-be homeowners may have to take on considerable debt or face being priced out of the market. That’s why many are turning to a potentially more affordable source of financing – their parents, aka the Bank of Mum and Dad. 

“Whether it’s gifting money towards a deposit or helping kids make mortgage repayments, parents are the silent force behind a large number of children getting into the property market,” Mozo spokesperson Tom Godfrey says. 

Over June and July this year, Mozo commissioned a survey* of more than 1,000 Aussie parents who have contributed money to their kids’ property ownership dreams. 

The average figure parents committed towards a home deposit was a whopping $70,000. And that’s not necessarily all the funds parents have dolled out from the Bank of Mum and Dad. 

Read on for the full bank statement.

How are parents helping their kids purchase property?

Mozo’s survey found there are plenty of homeownership costs which parents are covering beyond home deposit contributions. Many parents are also covering costs for adult children living at home rent-free to help them save; they’re buying a home on their kids’ behalf (or partly buying the property); or they are assisting kids with ongoing mortgage repayments. 

Considering all these efforts, Mozo’s analysis found the average amount parents contribute towards property purchases for their children is $134,200. 

This marks a considerable increase since Mozo’s 2020 Bank of Mum and Dad report was released. Compared to responses given in the 2020 survey, the average contribution has risen 83% from $73,522.

So, where is the money coming from?

In order to contribute to their children’s property purchase, 52% of the parents surveyed dipped into their own savings. Another 29% paid with their income, 22% cut back on expenses and 21% used equity from their own home.  

Compared to our 2020 Bank of Mum and Dad report, there has been a slight shift towards parents relying more on home equity (up 5%), and a move away from savings (down 12%).

Bank of Mum and Dad feeling drained

Many Australians have felt the pinch of economic instability or financial uncertainty over the last 18 months, and the Bank of Mum and Dad isn’t impervious to similar stress.

The larger financial contributions parents are making towards their kids’ property purchases could be putting them under financial strain. Just over two thirds of parents were of the opinion they may be risking financial hardship by helping their children purchase a home.

“Booming prices might be stretching the finances of parents across the country as they gear up to help their kids climb onto the property ladder,” Godfrey says.  

Extra support & competition among siblings

A parent’s financial situation could be put under even more pressure if they’re supporting grown-up children in other aspects of their lives.

Mozo’s survey found parents are providing extra assistance to adult kids unrelated to their homeownership goals. It included financial assistance for things like phone bills, medical costs, travel and even cosmetic enhancements.

The areas of their children’s lives that most parents were committing significant funds towards were education costs ($14,180), debt repayments ($12,720), living expenses while studying ($9,190) and vehicle expenses ($9,130).

It seems this kind of support is also taking a toll on the Bank of Mum and Dad, with more than half of the parents surveyed saying they felt stressed when their kids asked for money to assist with other purchases. 

But parents do seem to have priorities when considering which borrower type (aka which siblings) these funds should be dedicated towards. 

Youngest children are more commonly backed by the Bank of Mum and Dad, with 28% of parents saying they support youngest children the most. This was followed by financial support for middle children (15%), with only 9% of parents saying they support their eldest kids the most.

With all this in mind, 22% of parents surveyed said they never expect their children to ever stop asking for financial assistance.

Are children expected to repay their parents?

While it seems too good to be true, Godfrey says some children are lucky enough to have generous parents in a financial situation where they’re able to offer interest-free loans.

“If parents have the ability to not charge their children interest, it is an extremely rewarding offer. Not only do the children buy a property that could increase in value,  they are saving hundreds of thousands of dollars in interest that would usually be falling into the profit margins of lenders.”

One-in-five parents surveyed by Mozo are offering kids these interest-free loans to help them buy property. And the potential savings for home buyers are considerable.

The average variable home loan rate in the Mozo database at time of writing was 3.14% p.a. Compared to a loan at this rate, Mozo’s calculations show a $400,000 interest-free loan that’s repaid over 30 years could save a child $218,037 in interest alone.  

But not all parents are offering the same loan conditions. Mozo found 20% of parents lending kids money for property purchases expect the full amount repaid with interest. 

Another 39% have given their children money towards a home deposit as a gift ($70,000 on average) with an additional 18% also contributing to the mortgage repayments. 

A smaller number of parents have purchased property on their kids’ behalf (11%), and about 10% of parents have partnered up with their child to purchase a home.

Family money: Tips for parents supporting kids financially

While we all want to support our loved ones, lending and even gifting money to children can become complicated and potentially impact your own financial health. Here are a few things to remember when considering contributing money to your child’s property purchase or supporting them financially in other ways.

• Whatever arrangement you come up with, consider putting it in writing. This way you and your child both know exactly what you’ve committed to and misinterpreted expectations can be minimised. 
• If you’re using equity in your home to help fund your child’s property purchase, you may have to pay a higher interest rate on your own home loan. So, first ensure you have the capacity to meet your own repayments at a higher rate – our mortgage repayment calculator can help you do the sums.
• Understand the risks with becoming a guarantor on your child’s home loan (it could impact your own assets and credit rating).
• Gifting money to kids doesn’t come with tax obligations for them. However, if you’re receiving the Age Pension or other government benefits, there are limits and can be consequences for your own income. So, be sure to do your research before making any major financial decisions.
• If you’re under pressure or facing financial hardship, be sure to speak to your lender and seek professional advice before committing additional funds towards your children’s property goals.

If additional financing for a property purchase is required, you want to make sure you’re getting a good deal from a bank or lender. So, compare home loan costs and features with a few of the options below.

*Nationally representative survey of 1,007 Australians aged 18 years and above conducted by Researchify between 15 June – 11 July, 2021.