Bank of Mum & Dad. Good or bad for homebuyers?

By Graeme Salt

• Struggling to get on the property ladder? You may be beaten by someone backed by the Bank of Mum and Dad.
• Can’t get enough deposit?  Someone may be accessing their parents’ equity
• Pipped to the post at auction? The winner may well have greater fire power due to a parental gift.

Recently I have assisted in a couple of purchases working alongside the Bank of Mum & Dad.  A:

• $1m purchase in the Illawarra (Bankwest)
• $1.2m in Drummoyne (Suncorp).

And it seems that the growing importance of the Bank of Mum & Dad means that by 2020 it had become the fifth largest ‘lender’ in the nation.

According to Australian Housing Monitor research, kindly parents injected more than $2.7 billion into the property market in the year to November 2023.

But is this a temporary thing?  Maybe this is the intergenerational transfer of equity built-up by Baby Boomers to their kids?

Of the $1.5tn gifted in Australia between 2002 and 2018, about 90 per cent was in the form of inheritance. The remainder was gifted “inter vivo” or between the living – mostly to people aged around 20 and averaging about $8,000 in total.

What happens when all this equity has been transferred between the generations?

Of course, not all of us can rely on the Bank of Mum and Dad when it comes to purchase.  Sometimes:

• your parents don’t have that much wealth to share
• There are family issues mean sharing is not viable
• If you are a new immigrant family, it may be logistically difficult to transfer any/enough capital internationally

In fact, it seems that the majority of first-home buyers do not rely on the Bank of Mum & Dad. Data compiled by Martin North, principal of Digital Finance Analytics, showed that only 26 per cent of last month’s first-time buyers received help from parents.

If you can’t access the Bank of Mum and Dad, what are the alternatives?

The First Home Guarantee (FHBG) is part of the Home Guarantee Scheme (HGS), an Australian Government initiative to support eligible home buyers to buy a home sooner. It is administered by Housing Australia.

Under the FHBG, part of an eligible home buyer’s home loan is guaranteed by Housing Australia. This enables an eligible home buyer to buy a home with as little as 5% deposit without paying Lenders Mortgage Insurance.

For the FHBG, any Guarantee of a home loan is for up to a maximum amount of 15 per cent of the value of the property (as assessed by the participating lender). This Guarantee is not a cash payment or a deposit for a home loan.

On top of this, most state governments offer concession on stamp duty for first-homeowners (plus sometimes, purchaser grants).

If you want to discuss how these methods can be used for you to buy your home, feel free to get in contact with me.

Graeme Salt is an award-winning mortgage broker.  For a no-obligations consultation on your lending needs, please contact him on 02 9922 5055.