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The Australian dream of home ownership has been embedded for generations but, with property prices rising far more rapidly than incomes, it's a dream that a growing number of Aussies feel is out of reach.
Incomes aside, there's also the matter of intergenerational wealth which means some people can expect a major leg up to enter the market while others don't have the same advantage.
As our property markets continue to change, Shared Equity could be the key to levelling the playing field and helping to unlock home ownership for Australians who can't rely on financial help from their parents.
It's a term that has become commonplace in today's property market, and the statistics confirm that the Bank of Mum and Dad is playing a significant factor in home ownership.
According to LongView's Bank of Mum and Dad Report1, 46 per cent of first home buyers received some form of financial assistance from their family (or families) when buying in 2022.
Nearly 60 per cent of those benefiting from financial assistance from their families said they otherwise would not have been able to purchase their property.
LongView found that the average contribution is approximately $112,000. Finder reported in 2023 that the estimated collective size of the Bank of Mum and Dad is $35 billion.
The Australian Housing and Research Institute reported that those with parental support are twice as likely to enter the property market than those without, so it's clearly a vital asset for a large portion of younger Australians looking to get their feet on the property ladder, and the Bank of Mum and Dad is likely here to stay.
But what about those who don't have access to that pool of wealth? It's a major concern considering the increasingly high barrier to entry into Australian real estate.
While those fortunate enough to have parental assistance when buying a home are often better equipped to tackle a competitive, highly-priced market, not everybody falls into that bucket.
LongView found that 59 per cent1 of parents are not in a financial position to assist family members in purchasing a property.
First home buyers are facing an even more challenging market in 2024. Australia's median property price soared more than +30 per cent between March 2020 and December 2023. At the same time, interest rates have risen at a rapid pace, reducing the amount buyers can borrow considerably.
There's an obvious imbalance between those who can access the Bank of Mum and Dad and those who can't when it comes to buying a home that may only worsen if property price growth keeps outpacing income growth.
As BresicWhitney chief executive Thomas McGlynn told The Sydney Morning Herald, "Any parent would want to help their children get into property, but you cannot deny it has played a part in strengthening the property market."
Thankfully, there are some solutions available to help level that playing field and enable first home buyers to enter the market regardless of whether their parents have significant cash on hand or not.
For those parents or family who do wish to offer support in the home buying process but don't have the savings to do so, Shared Equity is one avenue worth considering.
A Home Equity Agreement (HEA) allows homeowners to access some of the equity they've built up over time and receive a lump sum payment in exchange for a proportion of equity in their property.
There are no monthly principal or interest repayments. Instead, the homeowner agrees to repay the received amount plus a predetermined share of the equity within a specific time frame or when the property sells.
Essentially, parents could tap into that equity as a means of coming up with a significant contribution towards a new property for their children without needing to dig into personal savings.
One way of looking at this would be to enable children to access a portion of their inheritance early and get into the property market sooner in a time when every year of delay can make a major difference.
Of course, not every parent is a homeowner with substantial equity in their property. So where does this leave buyers still searching for a way in?
HEAs have recently evolved to open up more pathways to home ownership through Shared Equity.
Much like the Federal Government's proposed Help to Buy scheme, a buyer could enter into an agreement with a provider to receive a lump cash sum to go towards a deposit in exchange for a percentage of equity in the purchased home.
Where the Help to Buy scheme will have a limited number of places available as well as a range of caps and conditions relating to households on lower incomes, a HEA with a private provider may offer greater flexibility around qualification and limits.
Find out more about how HEAs work here.
Whether you're on either side of a Bank of Mum and Dad transaction or you're opting to enter into a HEA, there are some risks to consider.
As OwnHome explained, borrowing from parents can involve some strain on relationships. A purchase could go wrong, loan repayments may not be met, and there is an overall chance of feelings of dependence and bitterness.
Parents also face a financial risk as guarantors of a mortgage or if contributing more than they can comfortably afford.
If parents are using a HEA to tap into equity in their own home, or if buyers are entering directly into a HEA, there is also the matter of having to repay that drawn equity and the agreed share of any future appreciation. Depending on the home value’s appreciation, this could be considerable.
1. Longview, 'Bank of Mum and Dad Report', 8 November 2022
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