Return of the bank of mum and dad

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.

Unconventional Economist
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Comments

  1. haroldusMEMBER

    “Mum can I have …”

    I’M NOT TOUCHING MY CAPITAL YOU LITTLE SH!T.

    (sorry mum – she doesn’t really speak like that)

    • ‘I’m sorry Harry you know I am but I lent so much to your sister that I really cannot give you anything and still go on my Rheinland cruise in October”

  2. Reflexivity – Mum and Dad’s equity pile grows, they help kids buy house at inflated prices, the more it grows the more they can help. If interest rates revert to mean over the long term, it has increased the relative interest burden/total expense on the next generation. The increased interest is the only component escaping the reflexive loop and coincidentally the part that goes into bankers pockets. If the ponzi crashes down the interest money is safely stripped out.

  3. Perhaps you meant to say “The ‘bank of mum and dad’ is really just a way of reducing intergenerational equity.” Surely the 24% (in total) of elders, helping their juniors with homes, are among the better off. I do not see how such a crass, institutionalised, reliance on old money can possibly be regarded as a social or equity virtue inter-generationally.

  4. The bank of M&D helped us out with a gift of money. They’re in late 70’s and are just biding their time in the family home which is far too big for them. Probably worth 1.3M today in the Sutherland Shire of Sydney. Never took the pension as their asset threshold is too high thanks to defined benefit super and some inheritance money. Also six figures just sitting in the bank doing nothing (they say they want to do some upgrades to the house, but they’ve been saying that for 10 years).

    I have three other siblings – my older sister – late 40’s, never paid a mortgage as she and her husband live in his old family home with her father-in-law in their big McMansion. Younger sister who is a rent-vestor with two IP’s who’s husband is a successful entrepreneur worth a good bit of money, and younger brother who married into a big wog family and got a house half-paid off when he got married, rode the property boom and upgraded to a big home with only $200K mortgage.

    Everyone except my idiot older sister was happy for my folks to give us money – complained that she has “private school fees to pay” for my nephew and could use the money as well. HAHA! Idiot.

    • happy valleyMEMBER

      Surely, you made a typo in saying in 1.3M for a Sutherland Shire (albeit being the shire of the liar) home – you must have meant 3.1M?

  5. BaldbadgerMEMBER

    “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.”…. That’s assuming your parents own a house. Too bad for the poor ones who’ll never be able to get ahead. Another blight on our society.
    Shame on this country.