A growing number of Australian parents have stepped in to help bankroll their children’s first homes – but the expectation that the chunk of money handed over will ever be paid back has all but disappeared.

The bank of mum and dad is a term used to describe the financial support provided by parents to adult children to purchase a house.

Sometimes, the support is a financial gift, a co-ownership arrangement or a guarantor loan.

Helping out with rent-free housing for your child can also help in saving for a deposit.

While the chunk of change used to be offered by parents to help their kids onto the property ladder, it’s now increasingly being handed over in a lump sum without the expectation of ever being repaid.

Considered one of Australia’s largest financial “institutions”, the bank of mum and dad is fast turning into the gift from mum and dad.

Collectively, parents are pouring an eye-watering $35 billion into property purchases in Australia, according to data from Digital Finance Analytics.

In 2024, investment manager UBS surveyed 1000 Australian adults about whether they had given money to or received it from family in the previous 12 months.

About half said yes, mostly for everyday expenses. The second most common use of family-provided funds was mortgage interest payments, while home purchases ranked third.

The financial contributions were also growing, with most exceeding $100,000 — and many surpassing $200,000.

Sign of the times

Experts say it’s a worrying sign of the times that young adults can’t get onto the property ladder without parental help.

The shift to providing children with a large financial gift to enter the housing market is an unhealthy sign of a property market that has bolted out of control.

Many agree that first-home buyers should be able to service a loan based on their income, without going into severe financial hardship.

Affordable housing advocate and property investment adviser Ian Ugarte said the issue pointed to a significant housing issue in Australia.

In the 1970s, the median house price was roughly three to four times the average annual income.

By the 1990s, it had moved closer to five times income, and by the early 2000s, it was about six times, Ugarte said.

“Today, in many parts of Australia, we’re seeing price-to-income ratios sitting between eight and 12 times the household income, depending on the city. That means what used to take three to five years of salary [to save] now takes closer to a decade or more for many first-home buyers,” he said.

“When affordability stretches that far beyond income growth, it forces behavioural change. Young adults stay at home longer, delay family formation, or rely on financial assistance from parents.

“That’s why the so-called bank of mum and dad has become one of the largest lenders in the country. It’s not because families want to do this – it’s because the system is pushing them toward it.”

For many parents, helping their children into property is effectively a forward inheritance rather than a financial loss.

“They recognise that if they don’t assist now, their children may struggle to ever enter the market,” Ugarte said.

The impact on retirement varies. But for households that have built strong superannuation balances and significant equity over decades, providing a deposit or guarantor support often didn’t materially change their long-term lifestyle, he said.

It used to take three to five years to save for a first-home deposit. It can now take a decade or more for many buyers.

Being fair

Parents who can help adult children with a financial gift towards a house deposit are setting their offspring up for a bright future in the housing market, mortgage broker Rebecca Jarrett-Dalton said.

The founder of Two Red Shoes Mortgage Brokers said parents needed to consider how to balance or make fair a financial gift to one and not necessarily other siblings, or how the potential of opening the floodgates to requests could play out in the future.

“We see issues arise when there’s a breakdown in any relationship – such as the kids’ relationship, and the gift becomes part of the financial assets,” she said.

Issues also arise where parents co-purchase with children, which is increasingly common.

To avoid this, parents need to be prepared to have some legal advice and documents drawn up.

“Parents also need to protect their own assets and consider their own financial planning, such as pension funds, because the gift can have an impact when it comes to considerations around Centrelink,” Jarrett-Dalton said.

Five top tips for the bank of mum and dad

1. Be deliberate: Don’t make comments to your children about helping out financially too early. Speak to your accountant before deciding if and how you could assist, with support coming in many forms.
2. Define the terms: Have clear conversations over several months about whether the money is a gift or a loan, and what the repayment terms will be to ensure the arrangement is clearly understood.
3. Document it: Get the agreement down on paper. This signals that it’s not free money. It’s capital with a specific purpose.
4. Give responsibility: Struggle builds capability, so make sure your adult child understands their financial responsibility from here on.
5. Offer to be part of the journey: If you’re in the property market, use your experience to help your child decide on the locations, suburbs and approach to taking their own steps.

Republished from view.com.au