Bank of mum and dad is growing in importance

Bank of mum and dad is growing in importance
Bank of mum and dad is growing in importance

It's a new twist on the saying charity begins at home since increasingly the first home buyer auctions I attend on any given Saturday see young buyers there with the folks.

As their children endeavour to step onto the Sydney property ladder, the parents aren't turning up to just provide emotional support at these entry level auctions.

More often than not they have come along with the deposit cheque.

The bank of mum and dad is growing in importance - and will continue to do so.

For most recipients it will rank as their biggest financial windfall in life, that is aside from an inheritance many decades down the track. 

Australian data on the emergence is lacking, but there's some interesting data from the UK where a Legal & General report suggested parents are predicted to lend more than £6.5bn this year to help their children get on the property ladder.

Millennials are the biggest recipients, with around 80 percent of the £30,000 typical handout going to people under 30 in what they calculated amounted to around 25% of UK property transactions.

There's also data suggesting almost a third of second steppers rely on financial help from family to move up the property ladder, according to Lloyds Bank research.

“The intergenerational inequality that creates the demand for parental funding continues to widen – younger people today don’t have the same opportunities that the baby boomers," according to the report by Legal & General.

Intergenerational inequality is overreach, but Generation Y have been accruing more debt at an earlier age than any of their predecessors.

With 40% of 18- to 35-year-olds having a study-related HECS debt, this generation are already on the back foot before they begin their careers.

And the casualisation of our increasingly fleeting workplaces means younger people are mostly on smaller or less permanent incomes too.

Finding real banks to borrow from is accordingly harder, hence the role of soft target parents parents from middle-class and wealthy families or the grandparents. 

In most UK cases the funds are given as a gift (56%) or as an interest free loan (21%).  

It is arguably better the funds come from families rather than government, and this largess overtime is going to come a bigger part of the solution to the problems of Sydney housing affordability. 

It is already as researchers from RMIT and Curtin University for the Australian Housing and Urban Research Institute (AHURI) found that 25 to 45-year-olds who received a cash gift from baby boomer parents had home ownership rates 15 percentage points higher than their peers.

But I worry the generosity puts the parents at risk in their old age.

They might be giving away their chance of a stress free retirement.

Treasury secretary John Fraser noted last year the bank of mum of dad was "becoming more and more prevalent." 

"It has impacts on superannuation," Mr Fraser warned.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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First Home Buyers Residential Auctions

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