Mum And Dad Have Lent $65b To Their Kids
Outside of the top 4 banks, your mum and dad are the biggest lenders in Australia.
According to a new survey from comparison website Mozo, more parents than ever are helping their kids buy their first home by allowing them to live at home rent-free or contributing to their deposit in the form of a gift or loan.
Mum and Dad aren’t just helping with the deposit
For first home buyers (FHBs) struggling to save a deposit, the safest no deposit solution offered by lenders is to have your parents act as a guarantor.
Surprisingly, only 13% of FHBs used a guarantor as a way to get their foot into the property market.
The most popular option was living rent-free at home (43% of respondents) in order to save a deposit faster.
To put that into context, the average Australian would have to save $1,116 every month for 5 years in order to afford a 20% deposit on an average property, a recent survey from State Custodians found.
The next popular route was Mum and Dad contributing to their child’s deposit (41%), acting as guarantor, assisting with repayments after the loan is approved (9%) and buying a property on their kids’ behalf (9%).
Do Mum and Dad want to be paid back?
According to the survey, over two-thirds of parents (67%) don’t expect to be paid back for their contribution.
However, over 18% said they wanted to be paid back in full (without interest) while 10% said they wanted to be partly repaid (without interest).
This is actually where first home buyers can get tripped up when it comes time to apply for a home loan.
If your parents are gifting you a deposit (fully or partially), you need to make sure that you have it in writing that this amount doesn’t have to be paid back.
Although you have the deposit amount, it won’t be classed as genuine savings by the bank.
That just means you didn’t save it yourself with regular deposits in a savings account.
There are only a few lenders that offer no genuine savings mortgages so having a gift letter as proof is crucial.
In saying that, the approval criteria can be quite complicated so it pays to speak with a specialist mortgage broker so you can get approved the first time around.
A guarantor is not as risky as you think
Although this survey found guarantor loans to be unpopular among first home buyers, banks actually see it as the least risky no deposit option.
The most common questions we receive revolve around when the guarantor can be removed and whether your parents risk losing their home should you default on your home loan.
The latter rarely happens at all.
You may even be better suited to the sister to the guarantor loan, the parent assist home loan.
The beauty of parent assist is that your Mum and Dad can actually get a return on investment from helping you buy your first home!
Check out the guarantor home loan section for a comprehensive guide.
Alternatively, give us a call on 1300 889 743 or complete our free assessment form to speak with one of our mortgage brokers.
We’re experts at helping first home buyers get into the property market.
How much have parents lent out?
Whether it’s a gift, a loan or ongoing financial support, the so-called “Bank of Mum and Dad” has lent out $64.3 billion to first home buyers, Mozo found.
This makes them the fifth biggest lender in Australia behind CBA ($416b), Westpac ($388b), ANZ ($248b)and NAB ($245b).
On average, that’s more than $64,000 per family household.
How does this break down?
FHBs in New South Wales (NSW) received the most parent assistance at $88,250 per family, followed by Victoria at $63,000, unsurprising considering the fact that these two east coast locations have the highest house prices in the country.