Australian Parents Cautioned About Financial Risks When Helping Children Buy Homes

Prospective buyers attend a property auction in Sydney, Australia, on May 8, 2021. Lisa Maree Williams/Getty Images

Australian parents and grandparents have been told to pay attention to their financial stability when helping their children enter the property market.

New research by the financial comparison company Compare Club revealed that the “bank of mum and dad” has become a popular funding source for young Australians purchasing their first homes.

This comes as young people are facing increasing financial burdens due to the cost of living crisis and high rental prices.

A survey of 1,000 people revealed that around 20 percent of parents had provided significant financial assistance to their children, with the value of gifts and loans reaching $75,000 (US$46,500) or more in many cases.

In addition, another 47 percent of parents are considering doing the same.

Compare Club said parental support resulted in 6 percent of parents getting into debt and around 2 percent resorting to a reverse mortgage.

“The bank of mum and dad remains one of the few viable paths to property ownership for many young Australians, but at what cost to their parents’ financial security remains to be seen” said Compare Club’s head of research, Kate Browne.

“When parents exhaust their savings or take on debt to help their children, they often sacrifice their financial stability.

“We’re seeing cases where the bank of mum and dad is effectively operating as an unregulated lending institution, but without the safety nets.”

Financial Expert Warns Parents to Consider Financial Stability

While Browne said many older Australians were capable of assisting their children in buying properties, she advised them to consider the impact on their retirement fund.

“Health-wise, people need to make sure that they have enough money to secure aged care, for example,” she said.

Browne noted that options like reverse mortgages could be helpful, but they are often associated with high interest rates.

At the same time, Compare Club revealed that an increasing number of Australians were suffering from bill stress.

According to the company’s Bill Stress Index, the percentage of high-income households using over 75 percent of their income for bills has soared by 246 percent since May 2024.

Utilities topped the list of concerns, with 45 percent of respondents saying it was their main source of stress, followed by mortgage repayments at 26.2 percent, and rental payments at 20.1 percent.

Compare Club’s research came after new data from CoreLogic hinted at a change in the housing market dynamics.

Australia’s national home values dropped by 0.1 percent in December 2024, marking the first decline in nearly two years.

“Growth in housing values has been consistently weakening through the second half of the year [2024], as affordability constraints weighed on buyer demand and advertised supply levels trended higher,” said CoreLogic’s research director Tim Lawless.