Bank of Mum and Dad is fifth largest lender in Oz

A new member has officially joined the Big Four, becoming Australia’s fifth largest bank, according to Douglas Driscoll, CEO of Starr Partners.

“I’m talking about the Bank of Mum and Dad,” he said. “We are encouraging first-home buyers to enter the market, but with escalating prices, it is more difficult than ever.”

Lenders are generally less willing to lend to first-home buyers as they’re considered to be higher-risk clients, mainly because they don’t have a long job history or established wealth.

“Parents often have a large amount of equity in their homes and they’re realising it might be better to support their offspring now when they most need it by releasing some of that equity, rather than leaving an inheritance down the track,” Driscoll said. “Unfortunately, the reality is that families can fall-out just as relationships can break-up, and I urge any parent considering this to have a formalised document professionally prepared by a solicitor to protect all involved.”

According to a recent survey by financial comparison site Mozo, the Bank of Mum and Dad has lent a whopping $65.3bn to first-home buyers, sealing its position as the fifth largest lender in the country.

On average, a first-home buyer borrowed more than $64,000 from their parents. Most astonishingly, unlike a regular bank, about 67% of parents don’t expect to be paid back, even in part, let alone in full.

The most popular method of assistance, favoured by 43% of respondents, is to allow adult children to live at home rent free, enabling them to save for a deposit. According to Mozo, the value of this arrangement is worth just over $25,000 on average.

Forty-one percent of parents favoured directly contributing to the deposit.

“Saving up a home loan deposit is a major cost when buying property, so it's no wonder that some of the more popular forms of assistance have to do with helping children save more effectively, or helping out with a lump sum towards the deposit,” said Kirsty Lamont, director of Mozo.

Other options include acting as a guarantor, assisting with repayments, or buying property on behalf of, or as a partner of, a child.

First-home buyers in New South Wales borrowed the most from their parents, followed by those in Victoria and South Australia, which ranked equally. First-home buyers in the Northern Territory and ACT borrowed the least from the Bank of Mum and Dad.

Parents are using a variety of strategies to help their children. Chief among them is dipping into their own savings, a method favoured by over two-thirds of respondents. Less popular methods include delaying retirement and selling off other assets.