The bank of mum and dad is alive and well, according to a new report.
It’s no new phenomenon: for decades, kids have been turning to their parents for a financial leg-up to get into the housing market.
But research released this week in the Genworth First Home Buyer Sentiment Report found that the number of first-timers turning to their parents or relatives to help them with a property deposit is growing.
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When canvassing would-be first homebuyers, they discovered that over a quarter of them (27.5%) are planning to ask their parents or family for assistance with the deposit.
Now, given how pricey it is to buy a home these days, this doesn’t seem all that outrageous.
Back when I bought my first apartment a little over 15 years ago, I paid around $200,000 for a two-bedroom apartment in Broadbeach.
I needed to save a 10% deposit, or $20k, and the first homeowners grant at the time contributed $7,000 towards that figure.
The prospect of saving $13,000 (plus a little extra for legal fees, stamp duty and insurance) wasn’t too intimidating.
Today, however, these same properties are on the market for almost twice the price.
First homebuyers need a borrowing budget of around $400,000, and a deposit of roughly $40k, to buy a similar style home in Broadbeach. So, it’s little wonder that people are turning to their parents for a helping hand.
Involving your family is not always an ideal solution, however, warns Georgette Nicholas, CEO and managing director of Genworth Mortgage Insurance.
“Whilst parental and family support is understandable, the increasing use of parental guarantees is cause for concern given the ‘knock-on’ effect in the event of a borrower default,” she says.
This is less about helping with a deposit, and more about signing on to have responsibility for the loan. In this instance, if the first homebuyer fails to make their repayments and mum and dad have signed on as guarantors or have even added their names to the loan, then the parents are financially liable for those repayments.
Regardless, at the end of the day, I think anything that can help you get your foot on the property ladder is a good thing. As long as you have clear expectations (and ideally a legal document outlining everyone’s roles and repayment plans) then parents are a solid option. I didn’t have a flush Bank of Mum and Dad to turn to, but if I did, I can guarantee I would have been lining up to make a withdrawal!