Bank of mum and dad backing first home market: Westpac

A new study from the bank reveals 52% of parents would be likely to lend money to their children for their first home.

Only 38% of parents would expect their children to pay their loan back in full.

Nearly a quarter of first home buyers expect their parents to offer some help to buy a house, according to the study.

It comes as first home buyers steadily build their market share. First home buyers continued their strong streak in April borrowing $964 million, compared to $868 million in April last year.

While the bank of mum and dad is becoming a popular route for first home buyers, advisers say family arrangements can have their pitfalls.

Parents can find themselves in trouble if their child splits with their partner and there is a subsequent dispute over ownership.

Before supporting their children, parents face the question of whether to define their money as a legally-defined loan that could be clawed back in the event of a dispute, or as a gift. According to Squirrel Mortgages, most parents prefer to define their money as a loan for legal protection.

Squirrel boss John Bolton said parent support can be crucial in helping children achieve lower home loan rates and better terms: "There is such a stark difference in the rates offered."

He said parents were crucial as banks run into LVR restrictions: "This will mean using parents a bit more again to navigate around the rules."

The bank of mum and dad lent an estimated $71 million last year, according to a presentation from New Zealand Trustee Services at last year's Financial Advice New Zealand conference. 

Stephen Wilton, a mortgage adviser at TAG, said the group had experienced "a lot" of demand for parental support in the current market, with prices remaining high. 

Westpac’s survey shows the older generation are willing to act as guarantors, quasi-lenders, and gift-givers for their children. About 55% would be prepared to gift money, 21% would offer a loan with interest, and 18% would buy a property outright for their kin.

Gina Dellabarca, Westpac’s acting general manager of consumer banking and wealth, said more first home buyers had turned to their family for assistance in an increasingly expensive market.

“The survey numbers show a strong degree of willingness to help, but also a range of differing attitudes and levels of knowledge,” Dellabarca added.

She added low interest rates, along with financial assistance from family, could help first time buyers.

“First home buyers are facing rising house prices but at the same time many still want to stand on their own two feet when it comes to owning a home,” Dellabarca said.