Home loan help: Why are first home buyers still turning to Mum and Dad?

The 'Bank of Mum and Dad' really took off in 2021, when the data showed spiking property prices were being met with a significant financial boost from Aussie parents. 

In fact, back then, mums and dads were helping their first homebuyer children a lot, giving $134,000 to put toward a property on average, according to Mozo Bank of Mum and Dad analysis at the time.

The proportion of Aussie parents doing this reached 60% in 2021, according to financial analyst, Martin North. However, his analysis also notes that a year later, this dropped to 30%.

Both the proportion and volume of money dropped, according to North’s report early last year. 

But has the Bank of Mum and Dad since reopened its doors?

High inflation and a changing Aussie property market

Of course, a range of factors will impact the number of first home buyers in the market, as well as their appetite for borrowing money. This might include the volume of available homes as well as home loan rates going up in line with the Reserve Bank’s 2023 interest rate hikes. 

Higher inflation hasn’t helped consumer confidence over the last year either. 

And yet, despite such financial headwinds, Aussies were active in the real estate market in 2023. And first home buyer activity was noteworthy. In fact, there was a 26% increase in the value of new loan commitments for first-time buyers between November 2022 and November 2023, as per the Australian Bureau of Statistics. 

So, it stands to reason that as property buying starts up again in 2024, the Bank of Mum and Dad might be back in vogue.

Indeed, Principal of Michelle May Buyers Agents, Michelle May says that the Bank of Mum and Dad could be the key to home ownership for first home buyers now more than ever.

“Young Australians caught up in fierce competition for a place to call home have enlisted their parents to help them get onto the property ladder,” says May. “Access to family support is critical to realising the dream of home ownership as many young Australians would struggle to save for a deposit on their own.”

May adds that while the Bank of Mum and Dad has often played a role in acquiring a home, the generational wealth transfer is on a whole new level now.

For some, this means receiving an early inheritance, allowing them to step onto the property ladder sooner. For others, the transfer will see them inheriting property directly from their parents. 

Some key facts below help to explain what we might expect in years to come:

• NAB research shows that by 2050, $3.5 trillion in assets will be handed from parents to children, mainly in the form of superannuation and residential properties. 

• In 2023 the Australian Housing and Research Institute found that 40% of 25-34 year olds expect their parents to step in to help them achieve home ownership.

• Some experts have suggested that due to the current economic climate, this wealth transfer is likely to occur sooner rather than later, as per investment services firm, Ausiex. 

High home prices make the Bank of Mum and Dad a necessity

With median home prices higher than ever (up to $1.5m in Sydney, says Domain), it stands to reason that financial help from the family may continue to be a factor for first time buyers. 

This might be especially so in larger property markets like Melbourne and Sydney, where supply is relatively low and demand can be inordinately high, competition can be fierce and prices can escalate quickly.

For May, the help from parents can be invaluable. 

“More than a financial transaction, wealth transfer represents a lifeline for countless Australians aspiring to homeownership,” says May. “Ultimately it’s a way to secure a permanent roof over their heads in a market where such security is becoming a rarity.”

Are there any risks to borrowing from Mum and Dad?

It’s always wise to go into any financial arrangement with a clear view of what you’re committing to and how it impacts all involved. For example, lending parents (or guarantors) may put further pressure on their own financial situation by overextending themselves. Perhaps more immediately, sharing money can sometimes hurt otherwise good relationships.

Mozo expert Peter Marshall says borrowing from the Bank of Mum and Dad can be very helpful for many people, though any arrangement like this calls for clear communication. 

“With rents continuing to increase rapidly, for those people fortunate enough to have access to a 'bank of mum and dad' there's more incentive than ever for them to use it and get out of the rental market,” says Marshall. 

“As long as you go into this type of arrangement with a clear understanding of whether the funds are a gift or a loan, which may be expected to be repaid at some point, there's little downside. It's a good idea to get even a brief email or text message confirming the basis of the arrangement, just in case memories become confused over time!”

If you’re keen to get onto the property ladder, you’ll need a home loan, and preferably one that’s more affordable by offering you a good interest rate. Our experts at Mozo do the hard yards of comparing some of the best home loans on the market to make this task easier for you. You can start comparing home loans below.