Real cost of Bank of Mum and Dad revealed

Young homeowners are leaning on financial help from their parents to get a mortgage

The Bank of Mum and Dad is kicking in an average cash gift of $40,000, with saving for a deposit still the biggest hurdle for aspiring young buyers as property prices soar further out of reach.

Fresh data shows just under one-third or 29 per cent of Aussie homeowners with a mortgage received financial help from their parents, with 13 per cent given money towards a deposit.

Compare the Market’s Household Budget Barometer analysed wide-ranging effects of rising living costs on the path to homeownership, finding 63 per cent of first-home buyers struggled to save a deposit despite most making sacrifices like cutting back on travel and leisure.

Saving a deposit is the biggest hurdle to homeownership.

The report comes as the Federal Government’s expanded Home Guarantee Scheme launched this month, removing place and income limits and raising property price caps to allow more first-home buyers to enter the market with a five per cent deposit and no Lenders Mortgage Insurance (LMI).

Compare the Market property expert Andrew Winter said the scheme may mean the Bank of Mum and Dad “finally get[s] a break”, after “some hardcore lending in recent years”.

“It’s also great news for aspiring buyers whose families do not have the means to chip in. It’s a more level playing field now for people who can’t count on help from well-off parents,” Mr Winter said.

Compare the Market property expert Andrew Winter.

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But the low-deposit scheme could further inflate property prices, potentially leaving young buyers saddled with huge debt through the life of their loan.

“Raising a deposit is just one hurdle. New buyers are facing bigger loans and larger repayments and that could mean that the pain that once came with raising a 20 per cent deposit is instead spread over the life of the loan, as homeowners have to grapple with more interest,” Mr Winter said.

“It is now more important than ever to ensure you’re on a competitive home loan rate, to minimise the interest you pay, and ensure you can make your repayments comfortably.”

More than half of buyers were priced out of their desired areas.

Compare the Market’s report found around 53 per cent of buyers were priced out of their desired areas, while 31 per cent said there was a lack of available homes on the market.

One in ten buyers said a lack of transparency around seller’s expectations had become a barrier in their property search.

“Australia’s housing affordability dilemma is a big messy problem,” Mr Winter said.

“But put simply, there are more people than there are properties to put them in. Shortfalls create demand and demand forces prices up.

“Higher property values remain a significant hurdle for many aspiring buyers.”

Buyers were cancelling holiday plans, taking on a side hustle or moving back in with their parents to save money.

The report found just 43 per cent of Greater Brisbane suburbs were affordable for average-earning couples.

Sacrifices would-be buyers made to boost their deposit savings included cancelling holiday plans (24pc), taking on a side hustle (21pc), selling off their possessions (18pc), and moving back in with their parents (9pc).

Chaice Paterson, founder of Low Deposit Homes, said enhanced schemes and grants had drastically cut savings required to get onto the property ladder. The required deposit for a brand-new property priced at $1m had been slashed from $122,000 last year, to $54,500 for eligible buyers, taking stamp duty exemption and all purchasing costs into account, Mr Paterson said.

Low Deposit Homes founder Chaice Paterson and his wife, Libby.

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But options for first-home buyers in Brisbane and the Gold and Sunshine Coasts to qualify for the First Home Guarantee remained limited, despite property price caps raised to $1m in those areas.

“In Greater Brisbane, you are basically looking at either Logan or Ipswich, and even then it is becoming very tough to find an established property under $1m,” Mr Paterson said.

“It is why so many people are banked up for land releases, they know this is their best shot.”

Mr Paterson camped overnight with clients before the release of new housing lots in a southeast Queensland estate, where 120 hopeful buyers applied for just 20 vacant lots priced around $300,000 each.

Real Estate Buyers Agents Associate of Australia (REBAA) president Melinda Jennison said affordability remained a major constraint for young buyers, with home prices jumping by up to $50,000 in the past month as panic buying swept the market ahead of the government scheme.

Buyers Agent Melinda Jennison.

“Properties that were selling for $750,000 last month are now selling for close to $800,000,” Ms Jennison said.

“Many buyers are reportedly panicking with some purchasing sight unseen or overpaying to secure a property.

“What was $800,000 will soon be $900,000, which will make it even more difficult for first timers to secure finance for a home, even with the scheme’s five per cent deposit on offer.”

Aaron Scott, founder of real estate comparison service bRight Agent, said the expanded availability of 95 per cent home loans without LMI carried hidden costs for first-timers.

“The first decade of paying off your mortgage is the toughest,” Mr Scott said.

“This period typically takes the smallest amount of principal off your loan, meaning you’re paying a lot and not really getting ahead.

“A 95 per cent loan, however you cut it, is essentially just prolonging this difficult part of the cycle.”

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