Yahoo Finance Bank of Mum and Dad open for business but Millennials reluctant to ask
Most parents say they would be happy to help their offspring get a foot on the property ladder, but few young Aussies have asked for assistance.
A survey of more than 1,000 Aussies found around two-thirds of parents would like to help their children cover the deposit for a first home, but only one-third of 18-to-34-year-olds had asked or would ask their parents for help.
The survey by the Evolved Group on behalf of 2Be found 44 per cent of people with children would use the equity from their home to help their children with a deposit to buy their first home.
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However, around 19 per cent of parents said they would prefer not to help their kids buy a property.
As many as 54 per cent of first home buyers were firm on their decision not to ask for help, while 14 per cent were neutral on the idea of the ‘Bank of Mum and Dad’.
The deposit hurdle
First home buyers have been struggling to get into the market in recent years, with the steep deposit hurdle the key reason new buyers struggle.
In Australia, the average house deposit has reached $119,560, which takes the average buyer between two and five years to save for.
Jenny Fagg, CEO of 2Be - a lender that specialises in helping older Australians use their equity to help their children buy homes - said opening the Bank of Mum and Dad could be fraught, particularly if there was a difference in expectations between parents and their adult children.
“We know many loans from parents to their children are undocumented, which leaves all parties vulnerable in the event of a major life event, particularly a relationship breakdown,’’ Fagg said.
Australian Family Lawyers head of asset protection Barry Frakes recommended treating the situation as a business deal, no matter how solid your relationships were.
“The loan has to be clearly described in writing and each party has to get independent legal advice - sadly just a handshake and a hug is not good enough,” he said.
“If you don’t cover all the bases, then it can cause issues within the family when one day you no longer agree about what the terms of the loan was - such as when it was going to be paid back.”
Frakes said that, in some cases, it might be suitable to include a small amount of interest on the loan so parents could still get some return on the investment, especially if they were dipping into their retirement savings.
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