How big is the 'bank of mum and dad'?

Conventional wisdom says that young Australians frequently turn to their parents for help with their mortgages – but is that backed up by evidence?

How big is the 'bank of mum and dad'?

The conventional wisdom that young home buyers rely on “the bank of mum and dad” to fund their home purchases and lifestyles is not backed up by evidence, according to a new report.

A study by the Productivity Commission found that most Australians received only about $1,000 in “gifts from their parents over a three-year period, according to a report by NCA Newswire.

Productivity Commissioner Catherine de Fontenay told NCA Newswire that the results may be surprising to many, as conventional wisdom suggests that relying on monetary gifts from parents was far more common than the evidence actually showed.

“From what you hear, it sounds as though the ‘bank of mum and dad’ is a very big phenomenon,” she said.

One of the most common ways the “bank of mum and dad” operates – at least according to conventional wisdom – is through parents guaranteeing loans to help their children purchase a home. However, after speaking to the major banks, the commission estimated that only about 2% of mortgages had this type of guarantee, NCA Newswire reported.

“That suggests that there’s a pretty small number of loans that are receiving help in that way,” de Fontenay said.

Another way parents could be helping is through gifts of money to help pay deposits or assist with other large purchases. De Fontenay told NCA Newswire that while there appeared to be some underreporting of gifts, those that were reported weren’t substantial, and for most people were financially negligible.

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“For the ‘bank of mum and dad’ to be really important, the gifts would have to be really hugely underreported,” she said.

The report also examined the impact of inheritance, which it found had doubled since 2002 and would likely continue growing, NCA Newswire reported.

However, the Productivity Commission found that most people were well into middle age by the time they received an inheritance – about 50 years old on average. That curtailed the impact of inheritance on life choices, NCA Newswire said.