An increase in the number of parents helping children to afford their first home has seen the ‘Bank of Mum and Dad’ grow into one of the largest financial lenders in Australia.
Twenty-nine per cent of parents financially assist their kids when they enter the property market as the home ownership dream becomes increasingly out of reach.
This is what happened to 29-year-old Adrian Terry.
“There is no way without my parents I would have been able to do it,” Mr Terry told 9NEWS.
He received a gift from his parents to purchase a four bedroom house in Melton, in Melbourne’s west, last year after his parents sold their investment property to provide the funds.
“I know dad was working a lot of overtime, mum was making money where she could as well,” he said.
In Perth, the average cost of a home is currently around $555,788, more than seven times the average Australian income of $78,832.
It’s a stark contrast to house prices from 30 years ago, when the average home would set you back $76,278 – four and a half times the average national income of $17,321.
It’s because of this, more and more first home buyers are turning to their parents for a loan.
“It’s one of the few ways young couples and singles can get into the housing market,” financial expert, David Sharpe said.
New research from Mozo, shows Australian parents have lent $65 billion to their kids, making the ‘Bank of Mum and Dad’ the fifth largest lender in the country behind the big four banks.
“It’s a huge amount of money and in most cases it’s not even formalised, it’s not written down, it’s just an agreement between the kids and the parents,” Mr Sharpe said.
But while lending large sums of money to family can help relatives dodge bank fees, lawyers say it can be a risky financial decision.
“Parents are lending their children funds to buy homes more in this market than ever in Australia before, that’s the same for new businesses,” Managing Director of HHG Legal Group, Simon Creek said.
“We need to ask ourselves, ok what would happen to the money I’m advancing if this relationship fell apart?'”
Mr Creek said close relationships often sour, and money related disagreements regularly have to be resolved in the Family Court.
“I would say as many as 25 per cent of them involve, at some point, a loan from either mum or dad or another family member,” he said.
“If you don’t have that you’ve got a really tough job convincing a court there was ever any intention to repay.”