Mom and Dad become Australia's fastest-growing mortgage lenders

by NZ Adviser12 Oct 2016
(Bloomberg) -- Beset by lending curbs and bubble-esque prices, first-time home buyers in Australia are turning to a rapidly growing source of finance: The Bank of Mom and Dad.

More parents are taking advantage of record-low interest rates to refinance their properties and help their grown-up kids onto the housing ladder amid sky-rocketing house values. Digital Finance Analytics estimates the number of Aussies getting help from their parents has soared to more than half of first-home buyers from just 3 percent six years ago.

Australia's housing rally has favored baby-boomers and locked out youth, compounding an inter-generational shift of wealth. As the number of bank loans to first-time buyers dwindles, the average slice of cash handed to them by parents has almost quadrupled in the past six years, DFA says. The downside: a market that the Reserve Bank of Australia is already wary of may get further inflated.

First-time buyers are "being infected by the notion that property is about wealth building, rather than somewhere to live,” said Martin North, Principal at DFA. That “may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels.”

Sydney, where values have risen more than 90 percent since the end of 2008, remains the priciest city; it was last month named the world’s fourth bubbliest market by UBS Group AG.

The boom is turning some homes into cash dispensers. More than two thirds of owners that refinanced houses worth more than A$750,000 did so to extract capital for reasons including helping their kids. Near the start of 2010, the average helping hand from parents was about A$23,000; today, it's more than A$80,000.

Aussie first-time buyers had a somewhat easier time a decade ago, thanks to government grants to help them enter the market. The assistance has since been scaled back.

All this is food for thought for the new central bank chief, Philip Lowe. He made clear he'll be paying attention to asset bubbles. Aussie parents take note: some economists are even starting to coalesce around the idea that the end of the the RBA's easing cycle may be nigh.

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