Bank of Mum and Dad – Page 2 – Digital Finance Analytics (DFA) Blog

The 200% Club – The Property Imperative Weekly – 20th Jan 2018

Lenders are facing a dilemma, do they chase mortgage lending growth, and embed more risks into their portfolios, or accept the consequences of lower growth and returns as household debt explodes and we join the 200% Club!

Welcome to the Property Imperative weekly to 20 January 2018. We offer two versions of the update, the first a free form summary edition in response to requests from members of our community:

Alternatively, you can watch our more detailed version, with lots of numbers and charts, which some may find overwhelming, but was the original intent of the DFA Blog – getting behind the numbers.

Tell us which you prefer. You can watch the video, or read the transcript.

In our latest digest of finance and property news, we start with news from the ABS who revised housing debt upward, to include mortgage borrowing within Superannuation, so total Household Liabilities have been increased by approximately 3% to $2,466bn. The change, which required the accurate measurement of property investment by self-managed superannuation funds, brought the figure up from 194 per cent so we are now at 200% of income. A record which no-one should be proud of. It also again highlights the risks in the system. Australian households are in the 200% club.

The final set of data from the ABS – Lending Finance to November 2017 which also highlights again the changes underway in the property sector. Within the housing series, owner occupied lending for construction fell 0.88% compared with the previous month, down $17m; lending for the purchase of new dwellings rose 0.25%, up $3m; and loans for purchase of existing dwellings rose 0.11%, up $12m.

Refinance of existing owner occupied dwellings rose 0.28%, up $16m.

Looking at investors, borrowing for new investment construction rose 5%, up $65m; while purchase of existing property by investors fell $74m for individuals, down 0.75%; and for other investors, down $21m or 2.28%.

Overall there was a fall of $16m across all categories.

We see a fall in investment lending overall, but it is still 36% of new lending flows, so hardly a startling decline. Those calling for weakening of credit lending rules to support home price growth would do well to reflect that 36% is a big number – double that identified as risky by the Bank of England, who became twitchy at 16%!

Looking then across all lending categories, personal fixed credit (personal loans rose $70m, up 1.74%; while revolving credit (credit cards) fell $4m down 0.18%. Fixed commercial lending, other than for property investment rose $231m or 1.12%; while lending for investment purposes fell 0.25% or $30m. The share of fixed business lending for housing investment fell to 36.7% of business lending flows, compared with 41% in 2015. Revolving business credit rose $6m up 0.06%.

A highlight was the rise in first time buyer owner occupied loans, up by around 1,030 on the prior month, as buyers reacted to the incentives available, and attractor rates. This equates to 18% of all transactions. Non-first time buyers fell 0.5%. The average first time buyer loan rose again to $327,000, up 1% from last month. We do not think the data gives any support for the notion that regulators should loosen the lending rules, as some are suggesting. That said the “incentives” for first time buyers are having an effect – in essence, persuading people to buy in at the top, even as prices slide. I think people should be really careful, as the increased incentives are there to try and keep the balloon in the air for longer.

So, what can we conclude? Investment lending momentum is on the turn, though there is still lots of action in the funding of new property construction for investment – mostly in the high rise blocks around our major centres. But in fact momentum appears to be slowing in Brisbane, Sydney and Melbourne. This does not bode well for the construction sector in 2018, as we posit a fall in residential development, only partly offset by a rise in commercial and engineering construction (much of which is state and federal funded). What I’m noticing is that those in the construction sector – from small builders to sub-contractors – have significantly lower confidence levels than they did six months ago, based on our surveys.

Whilst lending to first time buyers is up, there are risks attached to this, as we will discuss later.

The good news is lending to business, other than for housing investment is rising a little, but businesses are still looking to hold costs down, and borrow carefully. This means economic growth will be slow, and potential wages growth will remain contained.

Fitch Ratings says Australian banks’ profit growth is likely to slow in 2018 as global monetary tightening pushes up funding costs, loan-impairment charges rise, and tighter regulation has an impact on business volumes and compliance costs from the 15 or so inquiries or reviews across the sector (according to UBS). They say Australian banks are more reliant on offshore wholesale funding than global peers, as the superannuation scheme here has created a lack of domestic customer deposits. Global monetary tightening could therefore push up banks’ funding costs. Indeed, The 10-Year US Bond yield is moving higher, and whilst the US Mortgage rates were only moderately higher today, the move was enough to officially bring them to the highest levels since the (Northern) Spring of 2017.

The main risks to banks’ performance stem from high property prices and household debt. Australian banks are more highly exposed to residential mortgages than international peers, while households could be sensitive to an eventual increase in interest rates or a rise in unemployment, given that their debt is nearly 200% of disposable income. Indeed, Tribeca Investment Partners said this week that local equities may be hurt by troughs in the domestic property market. “A heavily indebted household sector that is experiencing flat to negative real income growth, as well as dealing with higher energy and healthcare costs, and which has drawn down its savings rate, is unlikely to fill the gap in growth”

In local economic news, the latest ABS data on employment to December 2017, shows the trend unemployment rate decreased slightly to 5.4 per cent in December 2017, after the November 2017 figure was revised up to 5.5 per cent. The trend unemployment rate was 0.3 percentage points lower than a year ago, and is at its lowest point since January 2013.

The seasonally adjusted number of persons employed increased by 35,000 in December 2017. The seasonally adjusted unemployment rate increased by 0.1 percentage points to 5.5 per cent and the labour force participation rate increased to 65.7 per cent. The number of hours worked fell. By state, trend employment rose in NT, WA and SA. Over the past year, all states and territories recorded a decrease in their trend unemployment rates, except the Northern Territory (which increased 1.6 percentage points). The states and territories with the strongest annual growth in trend employment were Queensland and the ACT (both 4.6 per cent), followed by New South Wales (3.5 per cent).

The ABA released new research – The Edelman Intelligence research conducted late last year which tracks community trust and confidence in banks. Whilst progress may be being made, the research shows Australian banks are behind the global benchmark in terms of trust. Based on the Annual Edelman Trust Barometer study released in January 2017, Australia remains 4 points behind the global average.

The Australian Financial Review featured some of our recent research on the problem of refinancing interest only loans (IO). Many IO loan holders simply assume they can roll their loan on the same terms when it comes up for periodic review. Many will get a nasty surprise thanks to now tighter lending standards, and higher interest rates. Others may not even realise they have an IO loan!

Thousands of home owners face a looming financial crunch as $60 billion of interest-only loans written at the height of the property boom reset at higher rates and terms, over the next four years.

Monthly repayments on a typical $1 million mortgage could increase by more than 50 per cent as borrowers start repaying the principal on their loans, stretching budgets and increasing the risk of financial distress.

DFA analysis shows that over the next few years a considerable number of interest only loans (IO) which come up for review, will fail current underwriting standards. So households will be forced to switch to more expensive P&I loans, assuming they find a lender, or even sell. The same drama played out in the UK a couple of years ago when they brought in tighter restrictions on IO loans. The value of loans is significant. And may be understated.

We also featured research on the Bank of Mum and Dad, now a “Top 10” Lender in Australia. Our analysis shows that the number and value of loans made to First Time Buyers by the “Bank of Mum and Dad” has increased, to a total estimated at more than $20 billion, which places it among the top 10 mortgage lenders in Australia. Savings for a deposit is very difficult, at a time when many lenders are requiring a larger deposit as loan to value rules are tightened. The rise of the important of the Bank of Mum and Dad is a response to rising home prices, against flat incomes, and the equity growth which those already in the market have enjoyed. This enables an inter-generational cash switch, which those fortunate First Time Buyers with wealthy parents can enjoy. In turn, this enables them also to gain from the more generous First Home Owner Grants which are also available. Those who do not have wealthy parents are at a significant disadvantage. Whilst help comes in a number of ways, from a loan to a gift, or ongoing help with mortgage repayments or other expenses, where a cash injection is involved, the average is around $88,000. It does vary across the states. But overall, around 55% of First Time Buyers are getting assistance from parents, with around 23,000 in the last quarter.

There was also research this week LF Economics which showed that some major lenders are willing to accept a 20% “Deposit” for a mortgage from the equity in an existing property, and in so doing, avoided the need for expensive Lenders Mortgage Insurance.

Both arrangements are essentially cross leveraging property from existing equity, and is risky behaviour in a potentially falling market. More evidence of the lengths banks are willing to go to, to keep their mortgage books growing. We think these portfolio risks are not adequately understood.

So, we conclude that banks are caught between trying to grow their books, in a fading market, by offering cheap rates to target new borrowers, and accept equity from existing properties, thus piling on the risk; while dealing with rising overseas funding, and in a flat income environment, facing heightened risks from borrowers as they join the 200% club.

That’s the Property Imperative Weekly to 20 January 2018. If you found this useful, do leave a comment, subscribe to receive future updates and check back for our latest posts. Many thanks for watching.

Bank of Mum and Dad Now A “Top 10” Lender

The latest Digital Finance Analytics analysis shows that the number and value of loans made to First Time Buyers by the “Bank of Mum and Dad” has increased, to a total estimated at more than $20 billion, which places it among the top 10 mortgage lenders in Australia.

We use data from our household surveys to examine how First Time Buyers are becoming ever more reliant on getting cash from parents to make up the deposit for a mortgage to facilitate a property purchase.

Savings for a deposit is very difficult, at a time when many lenders are requiring a larger deposit as loan to value rules are tightened. The rise of the important of the Bank of Mum and Dad is a response to rising home prices, against flat incomes, and the equity growth which those already in the market have enjoyed. This enables an inter-generational cash switch, which those fortunate First Time Buyers with wealthy parents can enjoy. In turn, this enables them also to gain from the more generous First Home Owner Grants which are also available. Those who do not have wealthy parents are at a significant disadvantage.

Whilst help comes in a number of ways, from a loan to a gift, or ongoing help with mortgage repayments or other expenses, where a cash injection is involved, the average is around $88,000. It does vary across the states.

We see a spike in owner occupied First Time Buyers accessing the Bank of Mum and Dad, while the number of investor First Time Buyers has fallen away.

But overall, around 55% of First Time Buyers are getting assistance from parents, with around 23,000 in the last quarter.

There are risks attached to this strategy, for both parents and buyers, but for many it is the only way to get access to the expensive and over-valued property market at the moment. Of course if prices fall from current levels, both parents and their children will be adversely impacted in an inter-generational financial embrace.

Bank of Mum and Dad Also Funding Kids’ Businesses Too

We have highlighted the fact that Young Home Buyers have been turning to the Bank of Mum and Dad to fund their transaction, on average to the tune of more than $85,000; despite the risks of eroding their parent’s retirement savings.

Now the Australian Small Business and Family Enterprise Ombudsman has released a study into factors impacting small to medium enterprise investment. And the Bank of Mum and Dad figures again; another sign of inter-generational wealth shifting and the two tier “have and have nots”.

Speaking at the Institute of Public Accountants national conference on the Gold Coast, Ombudsman Kate Carnell said barriers to investment included access to capital, red tape and energy prices.

Ms Carnell said removing barriers to investment would give small businesses confidence to grow and boost jobs.

Despite recent claims by bank executives that lending to small firms is booming, Ms Carnell said this wasn’t the case for borrowers who don’t have equity in property.

“Traditional bank loans are backed by real property mortgages and although alternatives are emerging, they are not currently mature and affordable,” she said.

“Young aspiring small business operators are particularly disadvantaged and increasingly rely on their parents to provide seed finance.”

Ms Carnell said this meant the “Bank of Mum and Dad” was often called on to help young entrepreneurs.

“This offers convenience and flexibility, but it puts people’s retirement savings at risk,” she said.

“It also raises social equity issues in that the children of affluent parents have greater opportunities to buy and grow businesses.”

Ms Carnell said a government-backed guarantee scheme could be the answer, similar to the British Business Bank.

The Ombudsman’s study also takes aim at red tape, saying past reduction efforts have largely been “window dressing”.

Ms Carnell said a successful pilot in Parramatta to make compliance requirements seamless should be extended to other areas.

“It was found there were more than 50 pieces of regulation which applied to setting up a hospitality business in Parramatta and that the regulation meant it took up to 18 months to commence trading,” she said.

“Regulation wasn’t removed, but was instead sped up and made invisible. Information provided once was used to automatically complete forms in other areas of bureaucracy.

“This is a smart way of using systems and technology to relieve regulatory burdens on business.”

A House Divided

From The Real Estate Conversation.

The Bank of mum and dad is growing the divide between those who can and those who can’t buy property. The latest Adelaide Bank/REIA Housing Affordability Report shows affordability is worsening, just as new research from Mozo shows increasing numbers of parents are stepping in to help their children get a foot on the property ladder. This chimes well with our own Bank of Mum and Dad research published recently.

The latest Adelaide Bank/REIA Housing Affordability Report shows affordability is worsening in Australia, just as new research from Mozo shows growing numbers of parents are stepping in to help their children get a foot on the property ladder. The trend is causing “a growing divide between the younger generation who have had assistance and those who have not,” Kirsty Lamont, Mozo Director, told SCHWARTZWILLIAMS.

The latest Adelaide Bank/REIA Housing Affordability Report shows that buying a house became even less affordable during the June quarter.

The deterioration in affordability comes as research from Mozo.com.au shows almost a third of all parents are helping their children to buy their first home.

The Adelaide Bank/REIA Housing Affordability Report shows the proportion of median family income required to meet average home loan repayments increased by 0.2 percentage points to 31.4 per cent.

The share of first-home buyers in the market is at its highest level since 2010

There is a bright spot in the data though. The number of loans to first-home buyers increased by 14.0 per cent, with increases in all states and territories except Tasmania.

“First home buyers now make up 14.3 per cent of total owner occupied housing,” said REIA President Malcolm Gunning.

Darren Kasehagen, Head of Business Development at Adelaide Bank, said, “A slight increase in housing affordability shouldn’t overshadow the welcome news that the number of first home buyers increased by 14.0 per cent during the quarter.”

The rate of first-home buyers has been dropping steadily over the last five years, but appears to have stabilised over the past 18 months, said Gunning.

Rental affordability improved

In the June quarter, the proportion of median family income required to meet rent payments declined by 0.6 percentage points to 24.3 per cent. The improvement was recorded across all states and territories except in Tasmania and the Australian Capital Territory, said Gunning.

Rental affordability is the best it has been since the March quarter 2010, according to Gunning.

The bank of mum and dad is stepping in, expanding the divide between those who can afford to get into the market and those who can not

With it getting harder for first-home buyers to get into the property market independently, the ‘bank of mum and dad’, as lending from parents has become known, has ballooned to being the fifth largest home lender in Australia, sitting behind, ANZ, the Commonwealth Bank, NAB and Westpac.

New research from financial comparison site, Mozo.com.au, shows 29 per cent of parents, or more than 1 million families, help their children purchase a home. Around $65.3 billion has been lent to children, with 67 per cent of parents not expecting any repayment.

The average amount lent to children is $64,206.

“For many first homebuyers, it takes years to scrimp and save for a home deposit and all the while house prices are continuing to skyrocket, making the great Australian dream exactly that – a dream,” said Lamont.

Australian property prices have risen 618 per cent in the last 30 years; wages growth hasn’t kept pace

“With Australian property prices rising by a staggering 618 per cent over the past 30 years and wages failing to keep up, many mums and dads across the country feel they have no choice but to dip into their own savings to help their children get a foot on the property ladder.”

Lamont said by dipping into their own savings and helping out their children, parents are actually shaping the property market.

“We knew that mums and dads were helping their children out, but the reality is they are actually changing the face of the Australian property market,” she said.

“We expect the Bank of Mum and Dad to remain a major player in the property market for years to come, and it’s likely to cause a growing divide between the younger generation who have had assistance and those who have not.”

“Those young Australians who don’t have access to parental assistance may have to shelve the property dream and consider other ways to invest their money and build wealth,” said Lamont.

“The bank of mum and dad is proof of family generosity, but also points to a broken property market for younger generations.”

NSW is the most generous state for parental lending with an average lend of $88,250 per family, totalling $32.7 billion.

VIC and SA rank second equal, lending around $63,000 per family.

ACT and NT are the least generous, lending $20,083 and $15,000 per family respectively.

The most popular ways for parents to help their kids get a foot on the property ladder is by allowing their children to live at home rent free. Other ways parents help is by acting as a guarantor, helping with repayments, or buying property on behalf of or as a partner with the child.

How Australian parents are helping their kids onto the property ladder

How Australian parents are financing their contribution to their children

Data from the Adelaide Bank/REIA Housing Affordability Report from across the nation

Victoria

The number of loans to first home buyers in Victoria increased by 10.0 per cent in the June quarter. In Victoria, first home buyers now make up 21.1 per cent of the state’s owner-occupier market. Rental affordability improved for the quarter with a decrease of 0.7 per cent of income required to meet median rents.

New South Wales

The proportion of family income required to meet loan repayments is 6.6 per cent higher than the nation’s average. New South Wales remains the least affordable state or territory in which to buy a home. Of the total number of Australian first home buyers that purchased during the June quarter, 18.2 per cent were from New South Wales. First home buyers now make up only 13.0 per cent of the state’s owner-occupier market – the lowest level across the nation. Rental affordability improved for the quarter with a decrease of 0.4 per cent of income required to meet median rents.

Queensland

The proportion of income required to meet home loan repayments increased to 27.2 per cent, a 0.5 percentage point increase over the quarter. Of all Australian first home buyers over the quarter, 25.4 per cent or 6003 were from Queensland while the proportion of first home buyers in the State’s owner-occupier market was 25.3 per cent. Rental affordability improved slightly for the quarter with a decrease of 0.7 per cent to 23.0 per cent of income required to meet median rents.

South Australia

South Australia recorded a decline in housing affordability with the proportion of income required to meet monthly loan repayments increasing to 26.8 per cent, an increase of 0.6 percentage points over the quarter but a decrease of 0.1 percentage points compared to the June quarter 2016. In the national breakdown, 5.8 per cent of first home buyers were from South Australia while the proportion of first home buyers in the State’s owner-occupier market recorded an increase of 12.6 per cent. Rental affordability improved by 0.7 percentage points.

Western Australia

The number of first home buyers in Western Australia increased by 16.0 per cent over the quarter and by 3.8 per cent compared to the same time last year. 17.5 per cent of all Australian first home buyers were from Western Australia. Housing affordability declined with the proportion of income required to meet loan repayments increasing to 23.6 per cent or 0.2 percentage points over the quarter but a decrease of 0.3 percentage points year on year.

Tasmania

Housing affordability in Tasmania declined with the proportion of income required to meet home loan repayments increasing to 23.9 per cent, an increase of 0.3 percentage points over the quarter and an increase of 0.2 percentage points year on year. Rental affordability in Tasmania improved with the proportion of income required to meet median rents decreasing to 25.8 per cent, a 0.8 percentage point drop over the quarter but an increase of 0.8 percentage points year on year. First home buyers in Tasmania decreased by 3.3 per cent over the quarter and by 17.6 per cent compared to the same quarter last year.

Australian Capital Territory

The number of loans to first home buyers in the Australian Capital Territory increased to 570, an increase of 49.6 per cent over the quarter and an increase of 21.8 per cent compared to the June quarter 2016. Housing affordability in the Australian Capital Territory improved with the proportion of income required to meet home loan repayments decreasing to 19.8 per cent, a 0.3 percentage point drop over the quarter and a decrease of 0.7 percentage points compared to the same quarter last year. Rental affordability remained stable. The proportion of income required to meet the median rent remained at 17.9 per cent.

Northern Territory

Housing affordability in the Northern Territory improved with the proportion of income required to meet loan repayments decreasing to 20.3 per cent in the June quarter or 0.8 percentage points. This was a decrease of 1.8 percentage points year on year. Rental affordability in the Northern Territory also improved with the proportion of income required to meet the median rent decreasing to 23.1 per cent or 0.6 percentage points over the quarter or a decrease of 2.0 percentage points compared to the June quarter 2016.

Meet The Eleventh Largest and Totally Unregulated Bank In Australia

More households are only able to purchase residential property with help from parents – the Bank of Mum and Dad. This has become a critical factor in helping first time buyers in particular break into the very expensive property market, especially as lenders tighten their underwriting standards.

But here is an astonishing fact – the Bank of Mum and Dad, on our latest estimate, is the eleventh largest lender in Australia, ahead of AMP Bank, HSBC and most of the community banks and mutuals. We estimate at least $16 billion is outstanding with the Bank of Mum and Dad, and it is growing fast.

The average advance to a prospective purchaser is now $88,096, and this continues to rise.

More than half of first time buyers need help from the Bank of Mum and Dad, either a cash gift or loan, or other help such as paying stamp duty, helping with mortgage repayments or child care costs. This is because of the equity held by those owning property, which is accessible when needed. But it does reinforce the inter-generational issues, and the risks in the market.

We wonder how many lenders check specifically to see if the saved deposit a prospective first time buyer has is a gift or private loan.

The mix of loans is interesting in that we see a relative rise in the number of owner occupied transactions where the Bank of Mum and Dad is active. In 2015, more investor loans were funded than owner occupied loans, that has reversed now.

Across the states, the relative proportion in VIC is growing, although NSW still has the largest number of loans. But the Bank of Mum and Dad is active is all states and territories.

Three points worth considering.

First, new buyers are ever more reliant on assistance from parents, but this creates inter-generation pressure with older home owners perhaps giving away value which should be part of their retirement nest egg, and younger buyers holding additional debt obligations below the water line. All caused by our silly property market, as Four Corners discussed. Those who do not have “wealthy” parents have little chance of entering the market, another factor in the inequality debate.

Second, this is of course totally (rightly) unregulated, but suggests that overall housing debt is even higher than might be thought from the official statistics. Often the arrangements are not formalised, and this can lead to issues down the track. Bank underwriting standards need to take account of this phenomenon.

Third our analysis suggests that households who receive such assistance are more likely to get into financial difficulty later, because they have not had the discipline of saving and so over-reach property wise.

Just one more element to consider when trying to understand the complex property finance sector.

Not everyone wins from the bank of mum and dad

From The Conversation.

The “bank of mum and dad” is helping young Australians with more than just their housing aspirations. New analysis of data on children receiving an inheritance or cash payment from their parents has found they are more likely to be involved in business startups, financial risk-taking and entrepreneurial ventures, and receive other benefits to those without wealthy parents.

The bank of mum and dad is an expression coined to describe parents generously helping their children to get onto the home ownership ladder. We already know that parental transfers are helping Gen X and Gen Y children break into home ownership, in a market considered unaffordable by international standards.

While some are angered by the growing intergenerational wealth divide between the millennials and their baby boomer parents, estimates from the Household, Income and Labour Dynamics in Australia (HILDA) survey show many young people are benefiting from the wealth of their parents.

Between 2002 and 2012, 1.8 million Australians received an inheritance on one or more occasions. There was an average transfer of A$95,000 per beneficiary over the period. An even higher number (5.8 million) received cash transfers from surviving parents. These gifts averaged A$9,000 per recipient.

Housing assets remain the most important component of households’ wealth portfolios. The majority of households will therefore directly or indirectly draw down on housing wealth to finance monetary gifts to others while they are still alive. The family home is also typically the largest asset bequeathed when parents pass on.

Moreover, booming real house prices have boosted inheritances. At the same time, flexible mortgages have enabled parents to dip into their housing wealth to finance cash gifts to their children.

More than a leg up the housing ladder

A recent Australian Housing and Urban Research Institute report has shed new light on how financial gifts from parents help shape young people’s economic opportunities.

The study matches every person benefiting from an inheritance or parental cash transfer to a “control” person who is not a beneficiary, but has otherwise similar personal characteristics.

We found that the bank of mum and dad is helping young Australians with more than just their housing.

Intergenerational transfer beneficiaries are more likely to hold a bachelor’s degree than non-beneficiaries. Among those who receive cash payments from their parents, 29% hold a bachelor’s degree compared to 21% of the control group who do not receive such transfers. Bequest recipients have double the average bank deposit account balance of the matched controls. These larger financial holdings can be used to buffer income shocks, and as collateral to relax borrowing constraints.

Beneficiaries might therefore be willing to take more risks. They are also better positioned to borrow and finance business startups that might not otherwise get off the ground. These ideas are supported by the data.

A higher percentage of those enjoying access to the bank of mum and dad have set up their own business. 22% of heirs to a bequest are self-employed. In comparison, only 16% of the matched controls were self-employed. Similarly, 17% of those receiving cash payments from their parents are self-employed, compared to 11% of the matched controls.

The findings suggest that the bank of mum and dad could play a role in lifting economic growth through multiple channels. These include business startups, financial risk-taking and entrepreneurial ventures.

Bridging an intergenerational divide or widening an intra-generational gap?

It seems the bank of mum and dad is recycling large amounts of housing wealth to the next generation through intergenerational transfers; and it is an increasingly important pillar supporting educational, housing and business opportunities. However, this is a “leg up” that only benefits those fortunate enough to have parents that are able and willing to transfer wealth.

The business opportunities, educational gains and home ownership status that these transfers promote will create a growing divide among younger Australians. Those whose parents own a home are able to take advantage of a wider set of opportunities than others.

As the home ownership dream fades for growing numbers of Australians, this divide will become more conspicuous. Life time renting is a prospect that many Gen X and Gen Y parents are having to contemplate. Unless Australian governments reverse the decline in home ownership, their children will in turn be bypassed by the intergenerational circulation of housing wealth.

These concerns should provide added impetus as governments strive to improve housing affordability, and restore the home ownership society older Australians take for granted. If our governments fail in this regard we could very well witness further entrenchment of inequality in decades to come.

Authors: Rachel Ong, Deputy Director, Bankwest Curtin Economics Centre, Curtin University; Gavin Wood, Professor of Housing, RMIT University; Melek Cigdem-Bayram, Research Fellow, RMIT University

The Property Market, By The Numbers

In our latest video blog we walk though some of the most important numbers in the mortgage and property market, including the latest findings from our household surveys.

Some of the questions we answer are:

How big is the mortgage market?
How many borrowing households are there?
What is the average mortgage size?
How many households are excluded from the market?
What will happen if mortgage rates rise by 3%?
Where is mortgage stress worst?
How does the Bank of Mum and Dad in Australia compare with the UK?

Baby Boomers digging into retirement savings to help their kids buy houses

From StartsAt60.

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.”

This chart shows the ages at which parents are giving money to their kids. Source: Digital Finance Analytics

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.”

More First Time Buyers Open An Account At “The Bank of Mum and Dad”

We have updated our analysis of assistance first time buyers are getting from their families in a desperate effort to get into the housing market at a time when the entry barriers in terms of price and affordability are as high as ever they have been. In addition, high loan-to-value loans are less available, so first time buyers need a larger deposit, and first owner grants are harder to access. Savings interest rates are also very low.

We released analysis a few months back, which caused quite a stir as it highlighted the inter-generational issues in play. We have now updated the quarterly analysis with data to December 2016.

First, more first time buyers are getting help from parents – up to 54% in the past quarter. This help varies from a loan for a deposit, a cash present, help with transaction expenses, or ongoing assistance with mortgage repayments or other household expenses. Parental guarantees are falling out of favour.

Parents are able to assist, thanks to the wealth effect created by home price appreciation, which is still occurring in the eastern states, though more patchily elsewhere.

Just under half the assistance is going towards first time buyers in NSW (mainly Greater Sydney), where the affordability issues are most difficult, and home prices the highest. But other states are also, to some extent, also in the game. Ignoring the volume growth, the percentage mix has been relatively stable.

But here is the volume picture, which shows the relative number across states (note the small counts in some states are less statistically robust), but the trends are clear.

Another cut on the data is looking at the type of property being purchased. In 2015, more investment property was is the mix, but now the growth is among owner occupied purchasers.

In terms of the value of the financial contribution, it varies. But for those making a loan or payment direct to assist in a purchase by way of a deposit, the average amount is now north of $85,000.

If parents bring forward payments to assist their offspring, it is worth asking whether this act of kindness may have unintended consequences.

First, are parents giving away some of their future financial security?
If it is a loan, is the basis of repayment clear, and documented?
When a bank assesses a mortgage application do they consider the source of the deposit – receiving a “seagull” lump sum is not the same as demonstrating a history of saving, and the risk profiles down the track are different.

It also raises complex questions around equity between siblings, and a whole raft of questions relating to inter-generational finance.

It is also worth remembering that more first time buyers are going to the investment sector before purchasing their own home for owner occupation, as our first time buyer tracker shows.