Bank of Mum and Dad becomes more popular

Have you opened up a new branch of the Bank of Mum and Dad in 2023? The concept of mums and dads, and sometimes grandparents, providing financial support for homebuying is not new. But as rents continue to rise and saving for a deposit becomes harder, more adult kids are queuing up at the Bank of Mum and Dad.

Average rent prices have increased by 6.8 per cent since the start of 2023, and the year’s not over yet. Meanwhile the time it takes to save a 20 per cent deposit for a house is now 10 years. That’s the national average, anyway. If you’re lucky – or should that be unlucky? – enough to be buying a house in Sydney, it’s 12.6 years.

So says a new report jointly compiled by ANZ Bank and property data specialists CoreLogic. Released last week, the ANZ CoreLogic Housing Affordability Report focuses on the state of affordability of home ownership in Australia.

The report’s findings, it’s fair to say, aren’t what most prospective buyers will want to hear. They will likely lead to the knocks on the doors of the Bank of Mum and Dad becoming louder. Especially in Sydney, where a massive 58.1 per cent of income is required to service a new loan.

All roads lead to the Bank of Mum and Dad

With numbers like that, it’s little wonder more first homebuyers are turning to family members for help. And fortunately for the kids, the Bank of Mum and Dad has been more than willing to help in general.

In the past year alone, about 15 per cent of borrowers have come calling, with parents handing over $2.7 billion. That’s 1 per cent of new lending coming via the Bank of Mum and Dad, according to investment group Jarden.

Jarden’s chief economist and bank analyst Carlos Cacho recently told clients this was splitting ownership into the “haves and have-nots”.

According to Mr Cacho, parents were supporting their children’s house-buying efforts in more ways than one. Roughly two thirds were receiving cash directly as a loan or gift. The other 33 per cent received assistance through parents becoming loan guarantors.

“Home ownership is increasingly becoming a class divide in Australia as affordability, particularly in Sydney, continues to deteriorate,” Mr Cacho said.

What makes things worse in Sydney?

Sydneysiders who like to indulge in friendly Sydney versus Melbourne banter can boast about higher prices than their southern counterparts. But for those trying to enter the property ownership market in Sydney, that’s of little help.

Why are Sydneysiders leaning more heavily on the Bank of Mum and Dad than Melburnians? According to the ANZ, it’s simply because Victoria has been building more homes.

There were 21 per cent more dwelling completions in Victoria when compared to NSW over the past 15 years. The ANZ CoreLogic report gleaned these figures from ABS building activity data.

The signs aren’t great

However, even in Victoria things may not remain so positive. Indicators suggest Australia’s residential construction boom is petering out as higher costs blunts buyer appetite. This in turn is leading to a slowdown in housing supply, according to a survey of analysts and economists.

And Mr Cacho expects residential construction activity to slow materially next year. This is likely sooner rather than later, he said, “as the current pipeline of work reaches completion around March 2024”.

This will almost certainly push property prices higher. That queue leading to the doors of the Bank of Mum and Dads is probably about to get longer.

Have you found yourself being a Bank of Mum and Dad lender? What homebuying assistance have you provided to your children? Let us know via the comments section below.

Also read: Mortgage debt burden for older Australians surges 600 per cent

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