The 'Bank of mum and dad' becomes unofficial 5th largest Aussie lender.
Sunrise welcomed us on screen to discuss the prevalence of mums and dads being unofficial lenders to many first (and other!) home buyers.
What does this look like? It could look like anything from:
Allowing kids to live back at home rent free while they are saving - very common and one hopes that the opportunity is maximised!
A literal loan - less common in our experience, the repayments on any such loan would need to be factored into any loan application. Parents would need to be mindful to confirm that their (grown up) child has the 'capacity' to repay this loan, or, only gift what they can afford to lose as a worst case scenario. We would strongly recommend legal agreements be put in place for any such loan as well.
A gift - more common, if parents are cashed up they might top up a borrowers savings allowing them to buy a better home, in a better suburb, avoid Lenders Mortgage Insurance or simply an advance inheritance. Parents in these instances would need to be mindful of the possibility of impact to any future pension entitlements, and the potential also for issues with siblings. Really clear documented agreements, legal and financial advice strongly recommended.
A guarantee - many parents are happily turning to guarantees for a limited portion of their kids loans to give them that proverbial 'leg up', popular because it doesnt involve mum and dad handing over cash - it still is not without it's risks. Minimise risk by seeking advice, seeking a "limited guarantee" and keeping their old bedroom warm so they can come home if all goes pear shape - putting tenants in the home or the home on the market before any credit issues come into force.
Previously, we have written about this for Domaine, check out the article here
Mortgage broker Rebecca Jarrett-Dalton, founder of Two Red Shoes, said a huge number of first-home buyers was trying to get into the market before further price rises.
She had also seen increased financial support from the bank of mum and dad, via guarantor loans, lending and cash gifts for home deposits – again driven by parents, rather than first-home buyers.
“I’m seeing a lot more first-home buyers say they want to do it by themselves and struggle, and then mum and dad come in and say why don’t we just help you,” she said.
“Right now, parents are really keen because they know the market is moving, so it’s harder for their kids to save and keep up with it,” she said. “When the market is more plateaued, they understand that kids have got more time.”
