The Bank of Mum and Dad: The Multi Billion Dollar Injection into the Property Market Raises Questions on the future of the Great Aussie Dream

Introduction: In recent times, the concept of "The Bank of Mum and Dad" has gained prominence as parents increasingly step in to financially assist their children in the pursuit of homeownership.

Research into the extent of reliance on this source of finance highlights the substantial role parents play in helping their offspring secure a place in the real estate market.

However, the implications of such financial assistance raise pertinent questions about long-term financial discipline and future access to property ownership.

The Financial Landscape: Recent data reveals that there is an increasing percentage of borrowers turning to their parents for financial assistance when venturing into the property market. This phenomenon can be attributed to the relentless increase in property prices, fluctuating interest rates, and the growing instability in employment.

Millennials (aged 25-34) are finding it increasing difficult to enter the property market and according to a recent report by the Australian Housing and Urban Research Institute (AHURI), approximately 40% of are looking towards their parents for assistance for future home purchases. As per the latest data, about 60% of first-time home buyers in Australia received financial help from the bank of Mum and Dad, a sharp increase from 20% in the early 2010s.

Immediate Gains vs. Long-Term Consequences: It poses the question - if the assistance from parents to get on the ladder damages their children's chances of staying there.

One key consideration is whether receiving a financial handout hinders the development of financial discipline, particularly in saving for a deposit. Saving for a property deposit is a significant financial milestone that develops character traits of discipline, patience, and a sense of financial responsibility.

On the contrary, individuals who receive financial assistance may miss out on this crucial learning experience.

Risks of Dependency: Dependency on parental support might inadvertently contribute to a lack of financial resilience. Individuals who have not experienced the challenges of saving for a deposit themselves may be more susceptible to financial instability in the long run.

The absence of a firsthand understanding of how difficult it can be to save for a deposit may lead to a higher likelihood of falling behind in repayments once the property is purchased.

Effects on the family relationships and dynamics:  Loans between family members can create tension and potentially harm relationships, especially if repayment or disagreement about the loan terms becomes difficult.

It may also create sibling rivalry and resentment if one child is assisted and not others. It may also add financial strain and risk to the parent’s future stability, particularly if they’re nearing retirement.

Effect on the property landscape:  The massive injection of money from the banks of Mums and Dads has potentially increased property prices as it artificially inflates the buying power of first-time home buyers. This practice may also widen the wealth gap, as not all parents can afford to help their children buy a home.

In the future, those without the financial support of their parents may be locked out of entering the property market altogether, changing the landscape of the Great Aussie Dream of owning your home.

Conclusion: The Bank of Mum and Dad's substantial contribution to the property market is apparent and is due to the difficulties that the younger generation face in entering the market. However, the long-term consequences of this will affect the property ownership landscape for decades to come.

It will limit the number of people who are able to step onto the property market and the question posed is those fortunate to have the step up have enough financial literacy, skills, and discipline to maintain ownership moving forward.

What are your thoughts on the Bank of Mum and Dad.......?

Please feel free to leave a comment or email direct to bernie@5keys.com.au

Note: Any advice given is general in nature and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.