How the Bank of Mum and Dad became the homebuying norm

Jarden previously forecast house price falls of 20 to 25 per cent, but Cacho said no one considered how the Bank of Mum and Dad would react as the Reserve Bank kicked off its most aggressive rate-raising cycle in more than a decade.

Several bank economists contacted by this masthead could not regularly model the funds transfer of the Bank of Mum and Dad when forecasting house price growth.

“What we didn’t account for was, I think, the impact of the shift in sentiment that the RBA turning a bit more dovish would have,” Cacho said.

Jarden concluded from surveying mortgage brokers that about 15 per cent of borrowers were using some form of family assistance to buy a home, receiving $92,000 on average from their parents.

“If we assume the majority are first-home buyers, it would imply about 75 per cent of first-home buyers were receiving some form of family assistance,” he said, noting it was up from 60 per cent in 2017 and 12 per cent in 2010.

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“The true scale of it 1705260995 is potentially even larger … when you look at the big capital cities. It certainly feels like it’s the key driver of the housing market.”

Equilibria Finance managing director and mortgage broker Anthony Landahl said the Bank of Mum and Dad stepped in last year in different pockets of Sydney as the deposit challenge was exacerbated by reduced borrowing power.

“It did become more commonplace,” Landahl said. “It’s mainly with those people who are trying to get into their first home, and we sometimes see it with upgraders too.”

He said the trend of family guarantee loans was now overtaken by cash gifts that range from $50,000 to $500,000. But $100,000 is roughly the average cash gift in his experience, he said.

“They’re not an insignificant amount. They’re a major contribution of the overall funding for buyers.”

The Bank of Mum and Dad partly explains the growing gap between property prices and levels of debt.

But family support also helped push prices higher despite a dramatic fall in buyers’ borrowing capacity, said Dr Shane Oliver, chief economist at AMP.

“They were closing the gap between what the bank was willing to lend and the price of housing,” Oliver said.

“It has been a real phenomenon over the course of the past year. It’s been a factor for many years, but it seemed to take off in 2023.”

Oliver said it created a bigger pool of buyers who were less rate-sensitive last year and ultimately helped buoy the market.

“The secret weapon they had was their parents’ financing. The question is whether that group has been depleted [for this year].”

With affordability unlikely to improve in a meaningful way, the driving force of Bank of Mum and Dad behind last year’s V-shaped recovery was here to stay, according to Thomas McGlynn, chief executive of BresicWhitney.

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“It’s going to continue to play out in a big part in this country in areas where Baby Boomers have spent a lot of time in the market,” McGlynn said.

“We’ve already seen a large transfer of wealth through property from Baby Boomers onto the next generations. That has to be one of the biggest drivers of why we saw prices rise in 2023.

“Any parent would want to help their children get into property, but you cannot deny it has played a part in strengthening the property market.”