Boomers increasingly supporting children into home ownership
LONDON: Boomers are increasingly supporting their children’s home buying ambitions via the bank of Mum and Dad.
The number of guarantor loans and contracts signed with three or more parties jumped in 2023, according to figures from mortgage brokerage Lendi.
One in every 20 first-home buyer loans written last year was supported by a parent who offered their home as additional security for the mortgage. The number of market entrants teaming up with three or more people on the title also doubled to 5 per cent.
Lendi co-founder and chief operating officer Sebastian Watkins said housing affordability was the driver of the growing interest in supports. “If you look at the last five years, we’ve seen dwelling prices increase 40 per cent, the deposit required go up 40 per cent and wage growth of 14 per cent,” he said. “We’re starting to see a gap there in that ability to save and they are looking for alternative ways to plug that gap.
“The interesting thing about the bank of mum and dad or leaning on their equity to contribute to that loan is that it gives the first-home buyer the ability to be out of mortgage insurance territory and, more importantly, on to rates usually more favourable.”
Analysis by the mortgage firm found that having a guarantor also allows the borrower to access more than $100,000 more on average, boosting their loan size from $518,000 to $626,000.
They also need a smaller deposit with to a typical borrower requiring $103,000.
More than $2.7bn was bequeathed by the bank of mum and dad to help 15 per cent of borrowers buy last year, investment firm Jarden found. The average parental assistance was valued at $92,000 and was taken up most readily in NSW.
First-home buyers have also flocked to the federal government’s Home Guarantee Scheme, which has helped more than 100,000 into homeownership with a deposit as low as 2-5 per cent since it was introduced in 2020.
Western Sydney mortgage broker Kim Horan said equity-rich, cash-poor parents were looking to guarantor loans as a way of supporting their children on to the property ladder. “It’s a more readily available option for most parents and is based on them having available equity plus confidence that their kids are ready for the commitment and have the ability to pay the loan,” said Ms Horan, franchisee of Aussie St Marys.
“It’s vital that they have that trust, and I would encourage anyone thinking of going guarantor for a loan to have a frank and honest discussion about the applicant’s ability to meet the loan requirements under a variety of circumstances.”
Family law expert Will Stidston said parents were increasingly looking to help secure their children’s future moves, whether it was their first or second home.
However, all options come with financial and legal risks. “Unintended consequences can always arise,” said Mr Stidston, principal of Melbourne-based law firm Barry Nilsson.
“Purchasing a home is the Australian dream, but before helping your child with one of the biggest transactions in their life, it’s imperative to get advice about the best way to go about it.”
Two in 10 savvy first-time buyers went in a completely different route and “rent-vested”, Lendi found. The concept, which refers to the process of purchasing an investment property while renting somewhere else, is gaining traction nationally.
