It is hardly surprising that the bank of mum and dad has been estimated to be between the fifth and the ninth-largest lender in the country, with about $35 billion in loans.
Based on the UBS analysis, 40 per cent of the survey respondents either gave or received money in the fourth quarter of last year.
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This weaves the bank of mum and dad increasingly into the fabric of Australia’s financial system. Law firm Hillhouse Legal Partners says it is used in two of every five first home buyer house acquisitions.
According to the report’s author, UBS strategist Richard Schellbach, the emergence of the bank of mum and dad is a relatively recent event, one enabled by middle income Baby Boomers having ridden a 30-year residential property and equity boom that has allowed them to retire with an excess of cash.
This is also the first generation to have received the fruits of years of compulsory superannuation.
As such, they are the recipients of a massive wealth wave. (It is this cohort of Australians that has supported consumption activity in Australia over the past few years.)
In decades gone by, Schellbach says, it was only the mega rich who were in a position to help their children buy homes.
However, Baby Boomers’ children, who are mostly in their 20s, 30s and 40s, are navigating a far tougher environment. Even those working in professions are finding it difficult to break into the housing market in major cities. This is hardly surprising given the mean value of a Sydney home is about $1.2 million.
And given people are living longer, waiting for inheritance to kick in means children could be well into their middle age before they see any benefit.
While the pre-death intergenerational wealth transfer via the bank of mum and dad makes sense, it isn’t without societal pitfalls. It creates a divide between those with parents with excess cash to hand their kids and those without.
Thus, two people on the same wage and with equivalent education could have completely different prospects of owning their own house.
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Meanwhile, there are also concerns about elder financial abuse arising from the growth in home loans from parents or grandparents.
Legal experts advise that these transfers should be well documented and have clarity around whether the money should be characterised as a loan or a gift.
But neither of these negatives look set to curb the avalanche of money parents and grandparents fork out to their cash-strapped children.
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