The Truth About First Home Buyers and the Bank of Mum and Dad

August 11th, 2023 - by Brad Gillespie

Buying your first home is a huge step, and for many, it’s a real financial stretch.

But new research reveals that one factor can make it up to 90% more likely to happen – receiving help from the Bank of Mum and Dad. We find out how many Australians are getting a leg up from their parents to buy their first home and what you need to think about before accepting or giving financial assistance for a property purchase.

Stats suggest early 30s is the prime time to buy

A new report reveals that renters who haven’t bought a home by their early 30s are less likely to become homeowners later in life compared with their parents’ generation. The research from the University of Sydney and the Australian Housing and Urban Research Institute (AHURI) looked at people in their early 50s to see if those who had been renting in their 30s had caught up to the rates of first home purchases seen in previous generations. While some had, others hadn’t, and 25% of the overall gap between the renters and homeowners was still in place after 20 years.

The research also found that as people spend more time in higher education and delay starting a family, home ownership among younger people has fallen. This is especially relevant in areas like Sydney’s inner city and inner west, where the average resident is a highly educated 30-something. According to the 2021 Census, the median age in the Inner West LGA is 38 and 48.2% of locals have a bachelor’s degree (compared to the statewide average of 27.8%); in the Sydney LGA, the median age is 34 and 52.6% of residents hold a bachelor’s degree.

The Transitions into Home Ownership: A Quantitative Assessment report found that 63% of people born between 1950 and 1954 had bought their first home by the time they were between 30 and 34 years old. But for those born between 1985 and 1989, that figure drops to 45%. Given there are no signs of this trend changing, today’s 30-somethings will most likely find it harder to buy a home. The report discovered that the probability of owning a home declined in a rising market, falling by 2.5 to 3 per cent for every $100,000 increase in house prices.

The Bank of Mum and Dad is helping more first-home buyers than ever before

The report found one factor that makes homeownership much more likely – help from the Bank of Mum and Dad. The research shows that each extra year spent living with parents increased the chances of buying a home by a huge 30 to 40 per cent, while a gift of $10,000 or more made a first home purchase around 90% more likely.

Meanwhile, research from the Australian Housing Monitor, released in June, found that receiving financial help from parents or grandparents to buy a first home is more common than ever. While around 15% of first-home buyers in the 1980s were assisted financially by their parents, that figure is now over 40%.

Data from Finder shows that in 2023 parents give their children an average of $33,278 to help with a home deposit. Parents in NSW are the most likely to help their children, according to Finder’s 2021 numbers, with 61% recorded as doing so. But parents aren’t just providing help with the home deposit. Around 7% help their children pay their mortgage, and 7% provide support by acting as a guarantor on their children’s home loans, up from 4% and 5% in 2019. The Bank of Mum and Dad has become so ubiquitous that Finder estimates it is now worth around $35 billion.

First home buyers in Sydney’s inner city and inner west

With their range of housing styles, proximity to the city, and enviable urban lifestyle, Sydney's inner city and inner west are perennially popular with first home buyers. In fact, the 2017 postcode (Waterloo and Zetland) made it onto InfoTrack’s top 10 Sydney suburbs for first home buyers in the June 2023 quarter after recording one of the city’s highest number of first home buyer sales. “This postcode has seen a steady and gradual increase month-to-month since the start of the year, with units the most popular type of property purchased,” said InfoTrack’s Head of Property Australia, Lee Bailie. “Almost three-quarters of all homes listed were within the $500,000 to $1 million price range, and strata owner-occupied properties represented 92% of all properties sold in this postcode.”

As Sydney’s rental market continues to soar, we’re seeing more and more first home buyers in Sydney’s inner city and inner west receiving help from parents and grandparents to get onto the property ladder. The assistance ranges from cash gifts to help with the deposit to buying an apartment, terrace, or house for their children.

What to consider when borrowing from the Bank of Mum and Dad

The research shows that older generations of parents and grandparents are increasingly transferring the wealth they’ve accumulated over their lifetimes to their adult children and grandchildren to help them get their foot on the property ladder. This could be in the form of a gift, a bequest, an early inheritance, the provision of a rent-free home to make it easier to save, a private loan, or a guarantor loan. While some parents have a cash lump sum to give, others are taking out second mortgages or other new loans or releasing equity from their own property to help their offspring.

Before a gift or loan for a first home purchase is given or accepted, all possible financial implications and consequences for both parties need to be considered. It’s a good idea to seek independent financial advice. That way, you can find out whether either party’s Centrelink benefits will be affected, ensure parents’ superannuation isn’t being put at risk, and make sure that all tax obligations are being met and the relevant information is being provided to your home loan lender.

As always, when money is involved, there’s the chance relationships could be put at risk. Reaching a clearly set out agreement before any money changes hands can help avoid issues down the track.

Are you looking to buy your first home in Sydney’s inner city or inner west? We can help. Get in touch with our expert local team today.