FAMILY FINANCE: The Bank of Mum and Dad is responsible for $16B of loans to help their adult children purchase housing.
FAMILY FINANCE: The Bank of Mum and Dad is responsible for $16B of loans to help their adult children purchase housing. Supplied

Bank of mum and dad Australia's 11th biggest lender

A NEW family bank is outperforming many community banks when it comes to housing loans and they appear to be far more lenient with late payments.

Welcome to the Bank of Mum and Dad.

This family-owned financial institution is punching above it's weight with an estimated $16 billion of loans being granted.

Currently it is writing more home loans than AMP Bank, Citigroup and HSBC Bank Australia and is certainly doing business across the Northern Rivers as well as performing strongly around the country.

According to a new report from Digital Finance Analytics, more households are only able to purchase residential property with help from parents and it has become a critical factor in helping first time buyers in particular break into the very expensive property market, especially as lenders tighten their underwriting standards.

DFA principal Martin North said the average advance to a prospective purchaser is now $88,096, and this continues to rise.

"It is astonishing the Bank of Mum and Dad, on our latest estimate, is the eleventh largest lender in Australia, ahead of AMP Bank, HSBC and most of the community banks and mutuals,” he said.

"More than half of first time buyers need help from the Bank of Mum and Dad, either a cash gift or loan, or other help such as paying stamp duty, helping with mortgage repayments or child care costs.”

Mr North said this is because of the equity held by those owning property, which is accessible when needed.

However, Mr North said it does reinforce the inter-generational issues, and the risks in the market.

"We wonder how many lenders check specifically to see if the saved deposit a prospective first time buyer has is a gift or private loan,” he said.

"The mix of loans is interesting in that we see a relative rise in the number of owner occupied transactions where the Bank of Mum and Dad is active. In 2015, more investor loans were funded than owner occupied loans, that has reversed now.”Mr North said across the states New South Wales has the largest number of loans however, the Bank of Mum and Dad is active is all states and territories.

As real estate continues to grow in price, so he said is the likelihood of loans from parents to children.

According to a recent report from Core Logic, property prices over the past 12 months to May 2017 have risen by 3.5% in Goonellebah, 7.2% in Lismore suburb, 8.25 in Lismore Heights and 6.7% per cent in North Lismore.

Meanwhile house prices in Clunes during the same period rose a whopping 35.7%.

Mr North said while the Bank of Mum and Dad may be more convenient, there are three issues to consider.

"First, new buyers are ever more reliant on assistance from parents, but this creates inter-generation pressure with older home owners perhaps giving away value which should be part of their retirement nest egg, and younger buyers holding additional debt obligations below the water line,” he said.

"But Those who do not have wealthy parents have little chance of entering the market, another factor in the inequality debate.”

Mr North said secondly because the Bank of Mum and Dad is of course totally (rightly) unregulated, it suggests that overall housing debt is even higher than might be thought from the official statistics.

"Often the arrangements are not formalised, and this can lead to issues down the track,”{ he said.

"Bank underwriting standards need to take account of this phenomenon.”

Finally, Mr North said DFA's analysis suggests that households who receive such assistance are more likely to get into financial difficulty later, because they have not had the discipline of saving and so over-reach property wise.



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