Buyers beware, especially the growing number of parents and grandparents of young Australians who are turning to the ‘bank of mum and dad’ for help stumping up home loan deposits.
Accounting for $29 billion annually, BOMAD is the nation’s ninth-largest mortgage lender and a port of call for almost 4000 Australian “kidults” every month.
While it’s natural for parents and grandparents to offer what they can, there is a real concern that adult children who borrow from parents are three-to-five times more likely to default on their mortgage within five years.
Those youngsters who have not had the discipline of saving over many years for a deposit can find that when they are given that helping hand, they are tempted to buy a bigger property than they should.
They over-commit themselves – and sometimes take their BOMAD benefactors down with them.
They may be taking on a bigger mortgage than they should without having learned the discipline of managing their finances.
And nowadays it is increasingly rare for young people to be truly secure in their employment.
In this age of snap lockdowns, it is sadly predictable that sudden unemployment will be a reality for a lot of young people for the foreseeable future.
No job means no ability to service their (expensive) home loan. Will your gift vanish into the haze?
If you guaranteed the loan, you and your partner could be in real trouble.
It is also dangerous to make assumptions about the future of the real estate market.
For mum and dad or grandma and grandpa, if they have accessed the equity from their own properties on the assumption real estate prices are going to keep climbing as they transition into retirement, what happens when the housing market (inevitably) cools down?
What happens if the kids have bought at the top of a boom, and are forced by circumstance to sell into a cooling market?
Mortgage rates are low at the moment, and realistically they have nowhere to go but up.
Remember 17% home loan interest rates in the 80’s? If we don’t learn from the mistakes of the past, we are doomed to repeat them.
With the average first-time Australian mortgage 15% larger in 2021 than it was in 2020 and people more leveraged into property at a time when it’s already expensive, the big structural risks are building.
All bubbles eventually burst. Beware!
Be cautious, and take advice before you decide.
When it comes to Wills, asset protection & estate planning in Australia, you can trust the oldest law firm in South Australia, Genders & Partners to guide you through the tough decisions you must make for your family’s future care and welfare.
If you have any questions, or would like further information, please call or email us. Would you like a quick phone call to discuss?
Feel free to phone or email us or use this link and book a timeslot for a free 15-minute phone consultation on my schedule: https://calendly.com/genders
Can’t get to us? No problem. We now offer home or office visits to many areas in the Adelaide metropolitan area at no additional cost.
Call us on (08) 8212 7233 to enquire further.
We can help you to protect yourself and your family. We look forward to being of service.
eBook “The Bank of Mum and Dad”
Check out the eBook containing The Bank of Mum and Dad from senior Australian lawyer Rod Genders.