Twenty per cent of Australian families have provided financial assistance to other family members to help them buy their first home, according to new research by industry super fund-owned bank ME.
An increasing number of family members said they were sacrificing retirement plans to help family members buy their first home, at the same time 26 per cent received financial assistance from a family member to buy their first home.
“It’s becoming increasingly difficult for parents and grandparents to help family members buy a first home while protecting their own retirement plans,” Patrick Nolan, ME’s head of home loans said.
“That a significant number of Australians are receiving and giving financial assistance to buy a first home and that an increasing number of givers are doing so at the expense of their retirement is further evidence of the challenges of house prices, which have risen steeply over the last few decades.”
Loans or gifts were the most common form of financial assistance provided, with 22 per cent of those surveyed saying they received a gift or loan and five per cent reporting they received support through a guarantor. A significant number of families engaging in such practices are of migrant background.
The survey also shows the amount being loaned or gifted between family members to buy property has increased from an average of $27,000 in 2011 to $42,000 within the last five years.
Twenty eight per cent of those who have financially helped a family member buy a home during the last five years said their generosity has affected their level of comfort in retirement.
A lot of parents originating from Greece, Italy and China are giving up on their retirement plan and continue to work in order to pay for their children’s loans.
In many cases, especially among families of European background, children expect their parents to provide them with their first home or pay the largest sum of the mortgage.
However, the findings show that interest-based money lending between family members for the purposes of buying a first home has doubled from 12 to 24 per cent since 2011. On the other hand, interest-free lending for the same purpose has dropped from 39 to 23 per cent.
The increase in interest-based lending within families was “likely a case of parents using a ‘price signal’ to provide a life lesson about the value of money”, Mr Nolan stressed.
“Just as many parents made their children do odd jobs to earn pocket money, now they’re making them pay interest on the financial help they’re giving to buy their first home.”
The survey was conducted via RFi Group in March using an online survey method. Survey completed by 2,000 mortgage holders. For more information head to mebank.com.au