The Bank of Mum and Dad
29 Mar 2021, Lynette McFadden
Every week in our auction rooms I get to see a huge range of emotions playing out. I’m often very moved by the drama that a competitive process can create for attendees and my heart goes out to them. There are tears about missing a much-wanted but very sought-after property, there’s elation at successfully purchasing, there’s a genuine pride at finally getting on the property ladder and, for some parents, there’s the realisation that without them the purchase would not have been possible.
These are tears that I can definitely relate to.
It seems more and more parents are seeing withdrawals from the trusty, rusty or even crusty ‘Bank of Mum and Dad’ and as we personally get a little bit nearer to that time ourselves, I thought I’d take a closer look.
Obtaining funds from family is not a new phenomenon, but it is a very important one for some first-home buyers – and with lofty deposits often required, it can involve big numbers. It’s essential parents are aware of this and that’s why we will often see parents not just on auction day but throughout the whole process, including open home attendances, and second and third visits. Being part of a very close family, I imagine that I’d want to do this as well and whilst some real estate professionals struggle with large family viewings – and even larger post-visit family debates – best you get used to it!
During my research, I’ve also discovered that providing funds is not as straightforward as it once was.
Originally the main means of assisting were, firstly, contributing to the deposit, to a level the lender was happy with, and, secondly, supplementing additional funds to ensure the debt-servicing criteria were met. It’s often referred to as a guarantee.
This second method needs to be carefully thought through by parents, as a default by their son or daughter (and much as we don’t like to imagine it, this can happen) could see them shouldering the responsibility for the loan themselves. This can become extremely uncomfortable, especially if they have their own financial commitments and pending retirement. To address this, there have been changes to the legislation deeming that any and all guarantors to a loan need to demonstrate the ability to meet the required loan payments to avoid the worst from happening.
As much as we all love our families, if you are considering helping in this particular way it’s essential to get independent advice.
So, what are these purchasers buying?
It seems they are trying everything.
First-home buyers with limited budgets are thinking outside the square and in some cases the market is giving them a robust education in looking at properties that buyers might have had the luxury of excluding in the past.
Varied locations, new subdivisions made infinitely more desirable due to improved motorway access, new schools and communities, are all hugely popular.
We are also encountering parents looking on behalf of overseas offspring with British Pounds and American Dollars burning a hole in their pockets and those budgets are extraordinary when compared with what was once considered necessary for making a purchase in our local market.
So much of what we achieve as human beings relates to how we have helped or been helped by others, and I imagine one day I’ll be in an auction room helping one of our family members make a withdrawal from the trusty bank of Mum and Dad too!
So, to all those parents in the same position, well done, without you a whole generation wouldn’t get to enjoy what we thought of as a right – and that’s home ownership.