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Australian parents are increasingly dipping into their savings or taking on debt to help their children enter the property market, but financial experts warn this generosity could jeopardise their retirement plans.
A survey by financial comparison platform Compare Club revealed that 6% of parents have gone into debt to assist their children or grandchildren, with 2% accessing their home equity through reverse mortgages.
Kate Browne, head of research at Compare Club, said the trend of parents stepping in as the “Bank of Mum and Dad” comes with risks: “We’re seeing cases where the bank of mum and dad is effectively operating as an unregulated lending institution, but without the safety nets.”
The survey of 1,000 respondents found those with reverse mortgages were 64% more likely to experience mortgage-related stress compared to the average Australian. Parental assistance ranges from direct financial gifts and loans to acting as mortgage guarantors or allowing adult children to live rent-free at home.
While many parents offering support are reportedly in a stable financial position, the survey found one in five had already provided substantial assistance from their savings – and nearly half were considering doing so. Browne cautioned that even financially secure parents should carefully assess the long-term implications of these decisions, particularly with retirement costs in mind.
“Health-wise, people need to make sure that they have enough money to secure aged care,” Browne said, adding that while reverse mortgages can be helpful, they often come with high interest rates.
The financial pressures facing younger Australians, including soaring property prices and high living costs, have made it difficult for first-time buyers to save for deposits. Rising rents have further complicated efforts to enter the market, although recent data from REA Group suggests some relief for renters.
In the December quarter of 2024, advertised rents remained unchanged in most capital cities, with only Brisbane and Canberra recording increases. Median weekly rents in Sydney and Melbourne, at $730 and $570 respectively, have not changed for six months, marking the slowest rental growth since late 2021.
As parents continue to provide financial assistance to younger generations, experts urge them to strike a balance between supporting their children and safeguarding their own financial future.
