The cost of kindness: new data shows Bank of Mum and Dad may cause mortgage heartache as rates increase

MEDIA RELEASE: First home buyers in five local government areas (LGAs) of NSW are at higher risk of losing the roofs over their heads following recent interest rate rises , according to new insights from Australian property data provider, National Property Group.

The probable culprit? Well-meaning parents.

Fuelled by a mortgage lending spree, 2021 was a record year for Australia’s ninth biggest lender, the Bank of Mum and Dad (BoMaD).

A whopping 60% of first home buyers turned to their parents for financial assistance to make their property dreams a reality, with BoMaD loans totalling a staggering $34 billion. But experts warn that those who borrow money from their parents to fund a property are twice as likely to default on their mortgage within five years.

In Sydney, Local Government Areas (LGAs) recently identified as BoMaD-backed property hotspots include Blacktown and Ryde. Across regional NSW, BoMaD markets include Queanbeyan, Albury, and Coffs Harbour.

According to National Property Group, the era of soaring home prices may soon be drawing to a close, with some BoMaD markets that experienced rises of up to 117% over the past few years now beginning to dip as the market cools.

For today’s BoMaD home buyers and lenders, a slowing property market and rising interest rates present complex financial pressures.

“Our data identifies key markets across metro and regional NSW where home values are starting to fall, which increases the risk of negative equity for some previous purchasers. The LGA of Ryde has seen a 16.8% fall in property values. We’re also seeing slight dips in home prices in regional LGAs such as Queanbeyan . For BoMaD buyers and lenders these trends could signal that it’s time to assess their financial future,” said Don Harb, National Property Group COO.

Nigel Horne, Principal of Albury-based Nigel Horne Real Estate, is seeing first-hand how the pandemic, interest rate rises and demand have spurred a rise in regional property prices, and the impact this has on buyers.

“Throughout our dealings with buyers, (family) financial assistance to fund a deposit has been a factor,” said Mr Horne. “Since the pandemic took effect in 2020, property values have increased significantly in our region. In my experience, demand has not slowed and there is still a shortage of properties.”

As a lack of inventory, and the impact increasing interest rates will have on borrowing power start to influence thinking, it is likely even more first home buyers will call upon the BoMaD for financial support, but according to Mr Horne, younger buyers will also need to reconsider their purchasing criteria.

“For first home buyers, this might mean the style, age, or size of the property they purchase now may differ from what they could have bought before March 2020.”