The Changing Landscape of Parental Financial Support in Australia
In Australia, a substantial shift in parental support towards home ownership has emerged. Gone are the days when assistance merely involved loans that required repayment; today’s trend has morphed into what many are now referring to as the "Gift from Mum and Dad." According to the latest research from financial site Mozo, 75% of parents are providing monetary assistance for their children’s home deposits without the expectation of repayment, marking a significant increase from just 33% in 2021.
Rachel Wastell, Mozo’s personal finance expert, highlights this as a notable generational change in the "Bank of Mum and Dad." Parents are now, on average, gifting about AUD 74,040 to help their children make their first step into property ownership. While this amount can be impactful for many, Wastell cautions that it’s only one facet of the wider mortgage landscape.
Recognising the appeal of receiving such a gift, Wastell warns of potential pitfalls. "While it’s thrilling to receive that financial boost, there’s a risk of fostering an unrealistic expectation of affordability," she explains. She advises a comprehensive assessment of mortgage repayments, suggesting buyers consider their ability to handle payments not just at current rates but also amidst possible future rate hikes.
Interestingly, about one in three parents feel a certain emotional obligation to support their children in acquiring property. However, some are resorting to extreme measures to facilitate this support. Mozo’s findings reveal that 3% of parents are securing loans or putting charges on credit cards to provide additional funds, a statistic that Wastell found alarming. She warns that parents putting themselves in precarious financial situations for their children’s benefit need to reflect on the possible repercussions.
The pressure to help children with significant loans can lead parents to make sacrifices, including delaying retirement or even selling assets to boost their financial contributions. Wastell raises a critical point: "What happens if you help them so much that they later need to turn around and help you?" This situation reflects a broader spectrum of potential financial strain that can arise from such support.
The average cash assistance has also evolved in response to rising property prices. With Australian property values soaring by 51% over the last five years, parents are increasing their financial gifts to keep pace with the escalating costs of property ownership. Mozo found that the source of this financial support typically stems from savings (54%), with another 29% coming from disposable income, while 19% of parents have opted to cut back on personal expenditures.
Significantly, only 4% of parents reported either delaying their retirement or liquidating their assets to provide financial assistance. This is particularly noteworthy given the marked increase in home deposit requirements, previously at AUD 69,907 in 2021 and now sitting at AUD 74,040.
The shifting dynamic can also be observed in how parents are perceiving the nature of their support. In 2021, a considerable number (33%) expected their contributions to be repaid; now, that figure has fallen to just 12%, with a dramatic 75% opting for gifts without future repayment. Additionally, nearly a quarter of parents (23%) have allowed their children to live at home rent-free to save for a deposit, a rise from 15% in 2021, though the cost of accommodating them has dipped significantly—from AUD 13,845 in 2021 to AUD 6,226.
Wastell suggests that this trend reflects a growing preference among parents for shorter-term arrangements: "Parents may be shifting to a ‘set them up and send them off’ model," providing larger initial amounts rather than ongoing support.
In summary, as the landscape of parental financial support in Australia continues to evolve, it remains vital for both parents and children to navigate the associated risks carefully. Engaging in open conversations about financial expectations and capabilities can help ensure that the support given contributes to a parent-child relationship built on mutual understanding rather than financial strain.
