The doors are open at the Bank of Mum and Dad

FOMO is real!

Whether it’s competition for Taylor Swift tickets or facing off against other buyers for your first home, the anxiety sits in the pit of your stomach.

But it’s one thing to want a home of your own. Being able to buy it is another thing entirely.

That’s why almost half of Gen Z are considering asking their parents for help to buy their first home, according to Great Southern Bank’s No Place Like Home report.

The report also found that Millennial homebuyers (36%) are three times more likely than Baby Boomers (11%) to have received financial support from their parents to buy their first home.

This scenario is so common, in fact, that it’s got its own term – ‘the Bank of Mum and Dad’.

What’s the Bank of Mum and Dad?

Put simply, it’s financial help from your family. There are two main ways parents can help.

1. Cash arrangement  
   Cash can be used to help supplement your home deposit or pay for upfront costs like stamp duty, Lenders Mortgage Insurance or home loan application fees.
   
   Whether or not you need to pay that money back is entirely up to you and your folks. Just make sure the arrangement is crystal clear to save awkward, even divisive, conversations down the track. Some families take the agreement one step further and formalise it in writing.
2. Home loan help
   A cash gift isn’t the only way parents can help. Your parents can also act as guarantor to your home loan. Becoming a guarantor means they offer their own property as extra security for your loan. This helps reduce the risk to the lender and can work in your favour as it can increase the likelihood of your home loan application being approved.  You could even avoid paying Lenders Mortgage Insurance, saving you thousands of dollars.

The pros and cons of getting help from your parents

Family support can be a lifeline for those struggling to save for a deposit in today's competitive housing market and cost of living crisis. But it's essential to weigh up the benefits and downsides before accepting your parents’ generosity.

Let's delve into the pros first.

Faster path to homeownership: One of the benefits of relying on family support is the ability to fast-track your journey to homeownership. With rising property prices outpacing wage growth in many parts of Australia, saving up for a sizeable deposit can feel like an insurmountable challenge. A financial boost from parents or relatives can significantly reduce the time it takes to build your home deposit.

Access a better home loan: A larger deposit can open the door to a more favourable home loan, including lower interest rate and lower monthly repayments. With a larger deposit, you may qualify for loans with better terms and potentially save thousands of dollars in interest over the life of your mortgage (helping you pay it off sooner).

Stability and security: Homeownership gives you a sense of stability and security. You’re part of a community and your financial wellbeing grows as you build equity in your home.

But it’s not all rainbows and lollipops. There are downsides to the Bank of Mum and Dad to consider as well.

Strained relationships: Mixing family and finances can sometimes strain relationships. Disagreements about repayment expectations and ownership stakes do happen. Money has the potential to create tension and resentment within families, so it's essential to approach the arrangement with clear communication, transparency, and even a written agreement outlining all the conditions of the help provided. These conditions can detail if, how and by when their money needs to be repaid.

Dependency: While help from your family can give you a leg up in the short term, it's important to cultivate financial independence and resilience in the long run.

Financial burden: It’s worth remembering that your parents’ generosity may cause them some financial hardship of their own. They may even need to postpone retirement to recoup the money they’ve given you.

While the Bank of Mum and Dad can offer significant advantages for homeownership, it’s important to carefully consider all the potential benefits and drawbacks.

Clear communication, mutual respect, and a shared understanding of expectations are key to navigating the complexities of Mum and Dad’s support.

Other ways to buy your home sooner

While it’s becoming more common to receive help from parents to achieve homeownership, there are plenty of families who aren’t in a financial position to contribute. And some people choose to go it alone without any assistance regardless of their family’s financial position.

If you’re in that boat, there are government schemes you may be able to access. These include:

• The Australian Government’s First Home Guarantee, Family Home Guarantee, and Regional First Home Buyer Guarantee
• State-based first homeowner grants

Beyond government help, you can help yourself achieve your goal sooner with clever banking tools like The Boost and The Vault.

Even though homeownership can feel out of reach, there are lots of resources available to get you there. Your parents might be part of that picture, because when it comes to your happiness, they don’t want you to miss out either.