A $500,000 helping hand: How the Bank of Mum and Dad became the norm

The property market reached unexpected heights last year thanks to the Bank of Mum and Dad, which helped buoy prices when they were forecast to keep falling.

Conventional economic wisdom suggests rising interest rates should have pushed property prices lower but the opposite happened, surprising even the best economic minds in the country.

Family help combined with other factors that boosted the market such as a dearth of homes listed for sale, false hope that interest rate rises were finished, and purchases from cash buyers who built up equity in the boom, driving last year’s V-shaped recovery.

National home values fell 7.5 per cent during the downturn of 2022, then regained their losses by November last year, on CoreLogic figures, although Sydney and Melbourne remain below their peaks.

Although the scale of the Bank of Mum and Dad is hard to quantify, a string of signs showed its impact last year.

Fiercely active Saturday auctions were a leading indicator. Young buyers supported by their parents registered to bid at homes, big and small, across the city.

Mortgage brokers and agents reported more anecdotal evidence of cash gifts not only becoming commonplace but also growing to sizable sums in the order of $100,000 or higher.

And the level of debt taken on relative to home values fell to a record low, according to Carlos Cacho, chief economist at Jarden Australia.

Jarden previously forecast house price falls of 20 to 25 per cent, but Cacho said no one considered how the Bank of Mum and Dad would react as the Reserve Bank kicked off its most aggressive rate-raising cycle in more than a decade.

Several bank economists contacted by this masthead could not regularly model the funds transfer of the Bank of Mum and Dad when forecasting house price growth.

“What we didn’t account for was, I think, the impact of the shift in sentiment that the RBA turning a bit more dovish would have,” Cacho said.

Jarden concluded from surveying mortgage brokers that about 15 per cent of borrowers were using some form of family assistance to buy a home, receiving $92,000 on average from their parents.

“If we assume the majority are first-home buyers, it would imply about 75 per cent of first-home buyers were receiving some form of family assistance,” he said, noting it was up from 60 per cent in 2017 and 12 per cent in 2010.

“The true scale of it [now] is potentially even larger … when you look at the big capital cities. It certainly feels like it’s the key driver of the housing market.”

Equilibria Finance managing director and mortgage broker Anthony Landahl said the Bank of Mum and Dad stepped in last year in different pockets of Sydney as the deposit challenge was exacerbated by reduced borrowing power.

“It did become more commonplace,” Landahl said. “It’s mainly with those people who are trying to get into their first home, and we sometimes see it with upgraders too.”

He said the trend of family guarantee loans was now overtaken by cash gifts that range from $50,000 to $500,000. But $100,000 is roughly the average cash gift in his experience, he said.

“They’re not an insignificant amount. They’re a major contribution of the overall funding for buyers.”

The Bank of Mum and Dad partly explains the growing gap between property prices and levels of debt.

But family support also helped push prices higher despite a dramatic fall in buyers’ borrowing capacity, said Dr Shane Oliver, chief economist at AMP.

“They were closing the gap between what the bank was willing to lend and the price of housing,” Oliver said.

“It has been a real phenomenon over the course of the past year. It’s been a factor for many years, but it seemed to take off in 2023.”