History doesn’t repeat but it sure does rhyme. With Australian property values commencing another strong upswing, the ‘bank of mum and dad’ is once again back in vogue.
In January 2020, just prior to the COVID-19 pandemic, a survey showed that more than half of Australian parents were directly subsidising the lifestyles of their children, with 15% gifting money for a home deposit, 5% going guarantor on a home loan and 4% helping with mortgage repayments. The “Bank of Mum and Dad” was even listed as the fifth biggest lender in Australia – sitting behind CBA, Westpac, ANZ and NAB.
Now Mortgage Choice is reporting a “substantial uptick” in parents going guarantor on their kids mortgages to help them onto the housing ladder amid soaring prices:
“There’s definitely been a substantial uptick from parents looking to support kids”, [James Algar of Mortgage Choice] said. “I’ve had parents come in with clients for their first meeting and say ‘what do we need to do to get them in the market now, is it giving a gift or is it going guarantor’. Really, parents are the driving force, and I’ve only seen that in the last few months”…
“With prices running away, the parents’ equity in property is a safer bet from their point of view”…
“The fear of missing out is alive and well both with first-home buyers, but also with the parents,” [Steve Mickenbecker, Canstar’s group executive of financial services] said.
The ‘bank of mum and dad’ is really just a way of restoring intergenerational equity – effectively an internal re-distribution of housing riches from old to young.
Perversely, it is also helping to inflate values and make housing less affordable by pulling in a new cohort of otherwise sub-prime buyers with the assistance of mum’s and dad’s balance sheet.