We’ve all heard stories about some Baby Boomer parents helping their kids out to buy their first home.
But as a new report, released by Digital Finance Analytics, has revealed, it’s becoming a growing trend across the country.
The report shows a growing number of Baby Boomer parents are giving their adult children money a leg up to get into the property market.
In fact, 54% of first home buyers who entered the property market in the last quarter of 2016 had financial help from their parents.
According to the report, in the last quarter of last year, the average amount given by parents to help their children buy property was $85,000.
Digital Finance Analytics principal Martin North said many Baby Boomer parents were bringing forward their children’s inheritance, using rising equity in their property to fund their kids first home deposit.
“Some are making a loan, others a gift,” he told Starts at 60.
“This is clearly eroding savings and equity for retirement. It’s replacing guarantees.”
While many parents are more than happy to give their children the money, Mr North said it could create some issues for parents down the track – particularly at retirement age.
“If it’s a gift, then the capital is gone. If it’s a loan, this can lead to difficulty later, especially if the terms are not clear, or the kids decide not to repay,” he said.
“Given that many Baby Boomers will not have sufficient super to funder their longer than expected retirement, this could put more pressure on the pension budget and create hardship for some in the future.
“I’m not sure many really understand the potential implications, but they also want to help their kids.”
The report found that parents aged between 55 and 60 were most likely to give their kids money for a home deposit, followed by those aged between 60 and 65.
Interestingly, that number drops once parents retire after the age of 65.
The children receiving the money are aged mostly between 30 and 35 (41.2%) and 35 and 40 (33.6%).
So, what do the Baby Boomers think of the report’s finding?
Well, we put the age old question of “would you give money to your children to help them buy their first home?” to Starts at 60 readers and the response was varied.
Several SAS readers shared stories of how they gave money to their children.
Joanne Tonkin-Bride said she gave more than double the average of $85k to each of her children.
“My ex was a very good provider and therefore were fortunate enough to be able to do so,” she said.
“l would rather see my children happy now, than after l’m dead and gone.”
Fellow SAS reader Lorrain Lidston also provided for her daughters’ home deposits.
“When our parents passed, we sold their property and split it with our two girls, having 1/3 each,” she said.
“Better they enjoy it now than when we are gone.”
Some other readers loaned money to their children, while others acted as guarantors.
Unfortunately, as some readers pointed, many Baby Boomers can’t afford to give their kids help.
Many of you wish you could help them, but as you would know, a lot of Boomers are struggling.
“I wish we had been able to have that opportunity, we have been frugal all our lives but did not have the money to put into Super, gave them a private school education instead,” SAS reader Pamela Sanders said.
And then there are some Baby Boomers who pointed out that their parents didn’t help them out, and that their kids need to work hard and save for themselves.
“I had to work for my first house. No one helped me.” SAS reader Ruth Hourigan said.
“I personally believe that is a major problem with todays generation. They can’t be bothered doing it for themselves.”
You might be wondering what is driving the trend in Baby Boomers helping their kids buy their first home?
Well, it all comes down to the very topical issue of housing affordability.
Mr North said that housing affordability was “shot” for purchasers without parental help, and he’s pointing the finger at high house prices, banks demanding larger deposits and a reduction in first home buyer grants.
“With parental help they may be able to buy (either for OO or investment purposes), but this does not help affordability in the longer term as it will continue to push prices higher, alongside ongoing demand from investors,” he said.
“Regulators may be pressing the banks to curtail lending growth a bit, but demand, especially down the east coast is rabid.
“Savers of course get lower returns on deposits which makes savings for the house deposit more challenging without a circuit breaker like the ‘Bank of Mum and Dad’.”
Interestingly, another report released this week shows the majority of Australians across all ages believe the Great Australian Dream is becoming harder to achieve.
The Evolving Great Australian Dream report, released by Mortgage Choice, has found an increasing number of us don’t believe the Great Australian Dream of “a free-standing house on a quarter-acre block in the suburbs” is achievable.
The report found 85% of Australians over the age of 50 don’t believe the Great Australian Dream is achievable, compared to 91.6% of Australians under the age of 30.
Mortgage Choice CEO John Flavell said Australians struggling to get a foot on the property ladder needed help to achieve their dream of home ownership.
“To date, we have heard a myriad of suggestions from both sides of parliament in relation to what should be done to address the issue of housing affordability,” he said.
“Home ownership should be achievable for all Australians, and as a nation, we should do what it takes to make that a reality.”
And the trend of housing affordability is only set to get worse, with more first home buyers set to rely on their parents to make home ownership a reality.
Mr North pointed to the UK, where more than 70% of first home buyers were getting help from the “Bank of Mum and Dad”.
“For as long as housing affordability is out of kilter with flat or falling incomes, many won’t be able to enter the market without help,” he said.
“My point is these intergeneration issues are not well understood. There are risks for both parties, and creates an additional divide – those wanting to buy with affluent parent can, those without this benefit are excluded.It is a symptom of a failed housing market. And failed Government policy to say nothing of poor RBA judgement.”
