Getting a foot on the property ladder is challenging for many first home buyers. The cost of living, high interest rates and soaring house prices are all contributing to the struggle to secure a property. Parents are watching their children lose out at auction after auction. And many of them want to help.

Enter, the ‘Bank of Mum and Dad’.

What is the Bank of Mum and Dad?

In today’s environment, more and more first home buyers are turning to parents for help getting on the property ladder. Parents are contributing cash for deposits, either as a financial gift or a loan, or signing guarantees to back up the lender applications (or both!). They may be providing enough for the loan deposit or may even cover the entire cost of the property.

Regardless of the amount provided, the term used for parents who are offering financial help to adult children is the ‘Bank of Mum and Dad’.

What’s contributed to the rise of the Bank of Mum and Dad?

The impact of sky-high property prices is strongly felt by young first home buyers. Meanwhile, their parents (who tend to be ‘baby boomers’) famously hold 53% of Australia’s wealth despite only making up a quarter of the population.

This discrepancy sees more and more young Australians turning to their parents for help. In fact, 2023 data shows that the Bank of Mum and Dad likely sits within the top 10 mortgage lenders in the country. And transfers in the form of bequests and financial gifts are expected to rise even further in future decades.

With the Bank of Mum and Dad doing a more and more robust business in the property buying space, what are the pros and cons? And if there are risks, how can you minimise them?

The pros and cons of the Bank of Mum and Dad

Many young adults are struggling to buy a home. Of course, the Bank of Mum and Dad can help make the impossible, possible, and help them get on the property market faster. Borrowing money from parents may also help you avoid extra fees and charges that could be associated with taking out a loan. It might also mean low or no interest rates.

Parents also often love seeing their children achieve home ownership. They can then see their children and grandchildren enjoying their contribution, rather than waiting for an inheritance.

However, it’s not all pros when it comes to the Bank of Mum and Dad. There can be financial and legal ramifications involved in money gifts, loans and even guarantees, even when between parents and children. Should things go awry in terms of your financial arrangement or personal relationship, the situation could get very messy. Mixing money and family can end in conflict. You should always speak to your lawyer before giving or receiving financial help from family.

How to make the Bank of Mum and Dad work for you

Your first step is to speak to a financial advisor, a mortgage broker (like our expert team) and a lawyer before you make any decisions. It’s important that you have all the information and understand all the ramifications.

Once you decide that this is the right approach for you, and have been guided on the best way forward, don’t forget the rest of your loan application! The Bank of Mum and Dad might have your deposit sorted, but you’ll still need to be in a good position to be approved for a home loan.

It’s important that you don’t neglect the rest of the home buying process just because you have your deposit sorted. All of the same steps apply: know your financial position, focus on your credit health, understand the market, identify your loan and property needs and consider getting pre-approval. This will ensure you’re getting the best deal!

Ready to Speak to Lenders?

If the Bank of Mum and Dad has offered to help you buy a property, it’s time to take the next steps. The Lending Loop team can help you to find the best home loan based on your unique situation.

If you’d like to chat, please get in touch today. We’d love to get you started on the right path of your property buying journey!