Bank of Mum and Dad on the rise

Monday 18 Jun 2018

Bank of Mum and Dad on the rise

 Did you know that recent figures show that the majority of first-home buyers are now using what has been coined ‘the bank of Mum and Dad’?

In-fact, family lending now sits 10th on the list of the biggest lenders for first home-buyers – we are talking $20 billion in property loans and an increase of 25 percent over the past 12 months – those are big numbers!

What are the implications of this shift however? Some are noting concerns about how this could drive inequality and the growing gap between ‘rich and poor’, while others warn the practice will only grow further in the light of the recent pressures on the banking sector and the royal commission.

Domain.com.au’s business editor Chris Kohler recently published an article looking into the matter. It is well worth the read. Check it out below, or you can read the original here.

 

 Majority of first-home buyers now use ‘Bank of Mum and Dad’ 

By Chris Kohler, Domain Business Editor

The majority of first home buyers now borrow from the so-called “Bank of Mum and Dad”, which accounts for more than $20 billion in property loans after shooting 25 per cent higher in the past year.

 The shift toward family lending has sped up in the wake of immense pressure on the traditional banking sector, which has been forced to lift rates and minimum deposit requirements as it scrambles to adhere to new regulations and expected future tightening.

The Bank of Mum and Dad now ranks as the 10th largest lender in the country, behind Bank of Queensland and ahead of ME Bank, research carried out by Digital Finance Analytics show.

Overall, 55 per cent of first-time buyers are said to now receive financial assistance from their parents, according to 52,000 interviews conducted over the past 12 months, and where a cash injection is involved the average amount is $89,000.

 

 

The news comes amid immense pressure on the traditional bank lenders, with the royal commission uncovering widespread breaches of responsible lending and ethical behaviour. 

With two rounds of the royal commission now out of the way, Reserve Bank governor Philip Lowe has this week warned households might find it harder to secure home loans as a result of the discoveries.

“It is possible that lending standards in Australia will be tightened further in the context of the current high level of public scrutiny,” he told a Reserve Bank board dinner in Adelaide on Tuesday, echoing concerns several big-name economists, including those at UBS and JP Morgan, have been expressing over the past few weeks. 

Is the Bank of Mum and Dad fast-tracking inequality?

The practice of parents lending to their adult children for the purpose of property buying has grown out of necessity, as property prices soared, and the mortgage lending sector is now experiencing a crackdown.

“Saving for a deposit is very difficult, at a time when many lenders are requiring a larger deposit as loan to value rules are tightened,” Digital Finance Analytics principal Martin North said.

“The rise of the importance of the Bank of Mum and Dad is a response to rising home prices, against flat incomes, and the equity growth which those already in the market have enjoyed.”

But the opportunity is only available to first-home buyers whose parents have the wealth and generosity to help their kids, Mr North points out.

“Those who do not have wealthy parents are at a significant disadvantage.”

 

The rise of the Bank of Mum and Dad also earned a warning in the Grattan Institute’s major report into housing affordability, published in March.

The practice will increase the divide between rich and poor, according to CEO John Daley and fellow Brendan Coates.

“If home ownership relies more on the ‘bank of mum and dad’, then getting a home relies more on the success of one’s parents than on one’s own endeavours,” the report reads.

“Patterns of inheritance means that more intergenerational inequality tends to lead to more inequality within the generations.”

First-home buyer activity has sharply increased in Sydney and Melbourne since state governments moved to erase or discount stamp duty obligations for first-time buyers, up to a set amount.

At the same time, rules introduced by the banking regulator to limit interest-only and investor loans – some of which have now been changed – caused a slowdown in investor lending, which is also thought to have boosted first-home buyer activity.


(Source: ABS, ANZ Research)

 

Majority of first-home buyers now use ‘Bank of Mum and Dad’ - by Chris Kohler, Domain Business Editor – click here to read original article

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