Forget the big four – and all the little banks for that matter. The fastest-growing source of finance for first home buyers in Australia is now… Mum and Dad.
That’s right – exorbitant house prices combined with super-low interest rates mean that more parents than ever before are refinancing their properties in order to give their children a helping hand onto the housing ladder.
While just 3% of home buyers were turning to Mum and Dad for financial help six years ago, this percentage has now sky-rocketed to over half. That’s according to estimates by Digital Finance Analytics.
The current state of the housing market means baby boomers are cashing in on huge price rises while younger buyers are being priced out, further intensifying the inter-generational wealth gap.
As we see fewer bank loans going to first time buyers and more cash being handed down by parents, there is a higher risk of inflation in a market that the RBA is already handling with great care.
Martin North, Principal at DFA, said first-time buyers were “being infected by the notion that property is about wealth building, rather than somewhere to live,” but this idea “may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels.”
In Sydney, property values have climbed more than 90% since the end of 2008, meaning it retains its title of Australia’s priciest city. Last month, UBS Group AG named it the world’s fourth bubbliest market. And they weren’t alluding to its cheerful and enthusiastic personality.
This housing boom means the Bank of Mum and Dad is dispensing cash at record rates. Of all the homeowners that refinanced houses worth more than $750,000, over two thirds wanted to extract capital for reasons including helping their kids. In early 2010, parents were handing out about $23,000 to help with the purchase of a home, but now that amount has almost quadrupled to more than $80,000.
To add to the misery for today’s hopeful home buyers, a lot of the government assistance that was in place 10 years ago has now been scaled back or scrapped, so it’s no wonder they’re turning to alternative means of assistance.
All of this hasn’t gone unnoticed by the new central bank chief, Philip Lowe, who has clearly said he’ll be paying attention to asset bubbles. Aussie parents would be wise to note that some economists are even starting to suggest that we’ll see an end to the RBA’s easing cycle sooner rather than later.
So on that note, parents if you need to refinance come and speak to our friendly Loop Financial team!