Tougher conditions imposed by banks, rate rises, increased minimum deposits and harsher repayment terms, has seen parental lending increase by 25 per cent to about $20 billion in the past 12 months as reported by the Australian Financial Review, and it’s only going to get worse according to RBA governor Philip Lowe and ANZ CEO Shayne Elliot, who both warned this week that loans will become even more difficult to get after the poor behaviour of banks exposed in the banking royal commission.
In staggering findings, the Bank of Mum and Dad, a term coined to describe parent lending to their children for property purchases, is now the tenth largest lender in the country, bigger than ME Bank, AMP Bank and the local operations of global banking giants like Citigroup and HSBC Australia.
Younger property buyers increasing reliance on parents to get into the property market reflects tougher lending conditions and difficulty saving deposits in rapidly rising property markets.
Martin North, Principal of Digital Finance Analytics, which complies the annual survey on parent financing of home loans, confirmed this commenting that “savings for a deposit is very difficult at a time when many lenders are requiring a larger deposit as loan to value rules are rising”.
Furthermore, younger buyers also find it difficult to save because of flat incomes, rising costs and the need to have a sizeable deposit to qualify for generous state-government first home owner grants.
At this stage, more than 55 per cent of first time home buyers require financial assistance from their parents, with the average cash contribution being around $89,000.
Yet despite the fact that the number of children needing financial assistance getting into the property market is increasing, the total number of first time home buyers continues to fall, meaning many without parental support could be giving up.
There are risks however associated with this strategy for both the parents and the children, especially if prices continue to fall from current levels, however for many, it’s really the only way to get a foot in the door.