Steve Jovcevski: Inequality is an offspring of the 'Bank of Mum and Dad'

There's a dark side to the recent increase in first home buyers, Mozo's property expert writes

Steve Jovcevski: Inequality is an offspring of the 'Bank of Mum and Dad'
There's a dark side to the recent increase in first home buyers, Mozo's property expert writes

With property prices rising by 618% over the past 30 years and national incomes trailing behind, it’s never been harder to get a foot on the Australian property ladder. This has led to the emergence of a new player in Australia’s complex real estate game – the Bank of Mum and Dad.

New research undertaken by financial comparison site Mozo.com.au shows the Bank of Mum and Dad has lent around $65 billion to their children, making it the fifth biggest lender in the country after the major banks. The study found one in three families has offered financial assistance to their children, which equates to around 1.02 million families.

Come the next property boom in eight years or so, I expect the number of families lending a hand to their children will grow significantly with the Bank of Mum and Dad asserting even more dominance over Australia’s lending landscape.

Earning an average or above average wage in Australia no longer guarantees the possibility of owning your home independently in many metropolitan areas. Therefore it’s hardly surprising that we found the most generous states were where housing prices are highest with parents in New South Wales and Victoria forking out an average of $88,250 and $62,053 respectively.

I expect that the majority of first-time buyers aged in their 20s and 30s will no longer be able to take their first step towards home ownership without parental help especially in these states.

As a result, we’re likely to see even more inequality in the Australian housing market than ever before. The property market is vastly different from the time when baby boomers were buying their first home - leaving this group with no other choice but to dip back into their savings to give a financial leg up.

Of those that offered their children financial assistance, Mozo’s study found that almost two-thirds have chipped away at their savings. The result of this is many baby boomers aren’t as well off as they thought they were.

The reality is even more dire for younger generations who have parents who are not able to assist them with the purchase of their first home. Many young people may have to let go of the property dream and explore other ways to invest their money and build wealth.

Steve Jovcevski is the property investment and lending expert at Mozo.com.au. With an extensive knowledge of home loan products and property trends, Steve is full of practical tips to help first homebuyers, refinancers or investors build and get the most out of their property portfolio.