The Bank of Mum and Dad has become Australia's fifth-largest mortgage lender, with parents contributing an estimated $35 billion annually to help their children enter the property market. As housing affordability continues to decline, more than 60% of first-home buyers now rely on parental support to secure their first property.
But while family financial assistance can open doors, it also brings significant risks—from relationship strain to tax implications and potential legal disputes. This comprehensive guide explores everything you need to know as a property investor about the Bank of Mum and Dad: how it works, the risks involved, and smarter alternatives like Futurerent that can help your support your family without compromising their financial security.
What is the Bank of Mum and Dad?
The "Bank of Mum and Dad" refers to parents who provide financial support to help their children buy property—whether through gifts, loans, or acting as guarantors on home loans. This informal lending institution has grown so large that it now ranks between the fifth and ninth largest mortgage lender in Australia, according to the Productivity Commission.
The Growing Influence of Parental Support
Recent data from Digital Finance Analytics shows that the Bank of Mum and Dad contributes approximately $35 billion annually to property purchases across Australia. That’s a staggering figure, but it reflects the increasing difficulty first-home buyers face when trying to enter the property market.
- Prevalence: More than 60% of first-home buyers in Australia now get financial help from their parents, according to Finder's Consumer Sentiment Tracker.
- Average Contribution: Parents give their children an average of $33,278 to help with a house deposit.
- Market Impact: If the Bank of Mum and Dad were an actual financial institution, it would outrank established banks like AMP and HSBC.
Why Parental Support Has Skyrocketed
Why the surge? It all correlates with Australia's housing affordability crisis. According to CoreLogic, the national median dwelling value reached $815,000 in December 2024. You’re probably thinking that’s well beyond what your children could afford to pay, and it would be well beyond most other first-home buyers as well.
For context, the "affordable" purchase price for a median-income household is approximately $513,000. That leaves a $302,000 gap that most can't bridge without help. A couple aged 25-34, looking for a 20% deposit, is looking at an average time of 4 years and 9 months to save up. No wonder so many are turning to their parents.
> "We're seeing a fundamental shift in how younger Australians are entering the property market," says Kate Browne, Compare Club's Head of Research. "Parental support has transitioned from a 'nice advantage' to an almost essential requirement for many first-time buyers."
How the Bank of Mum and Dad Works in Australia
How can you support your children? Parents typically help their children enter the property market in four main ways, each with different risks, benefits, and legal implications.
1. Gifting Money
The simplest method is to give your children money outright, typically for a deposit. That leaves you without any repayments to worry about and can significantly boost their borrowing capacity.
How it works: You transfer a lump sum to your child with no expectation of repayment. Your child then uses the funds toward their deposit or purchase costs.
Example: Sarah and Tom wanted to buy their first home in Melbourne. Sarah's parents gifted them $50,000 for a deposit. This helped them avoid Lenders Mortgage Insurance (LMI) and secure a better interest rate. They documented the gift with a simple letter, making it clear for their lender.
2. Providing a Loan
Some parents prefer to lend money rather than gift it. This can help protect your interests while still helping your child get into the property market.
How it works: You lend money with specific terms regarding repayment schedules and interest rates (if any). Make sure you formally document the arrangement to avoid future disputes.
Example: Sachin borrowed $60,000 from his parents to purchase his first apartment in Brisbane. They drafted a formal loan agreement specifying quarterly repayments over 10 years at a 2% interest rate—well below bank rates but enough to ensure the arrangement was recognised as a genuine loan.
3. Acting as a Guarantor
You can also use the equity in your own property as security for your child to take out a loan, reducing or eliminating the need for a deposit.
How it works: You offer your property as additional security for your child's mortgage. This reduces the loan-to-value ratio (LVR) from the bank's perspective, potentially eliminating the need for LMI.
Example: A young couple wants to buy a $500,000 property but only has a $50,000 deposit (10%). Normally, they would need to pay LMI, which could cost thousands. Instead, the parents offer $50,000 of equity in their own home as additional security, bringing the effective deposit to 20% and eliminating the LMI requirement.
4. Unlocking Home Equity
You can also access equity in your property to provide funds for your child's deposit or purchase costs.
How it works: You refinance your own mortgage or establish a line of credit against your property, then gift or lend the released funds to your child.
Example: The Wilsons had significant equity in their family home. They established a line of credit for $100,000 and gave this money to their daughter for her first home purchase. While this increased their own debt, the low interest rate on their home loan made this more affordable than other options.
The Bank of Mum and Dad Boom
The number of first-home buyers using the Bank of Mum and Dad surged from just 20% in March 2020 to 60% by March 2021, according to Digital Finance Analytics. This dramatic increase coincided with the property market boom that followed the initial COVID-19 economic uncertainty.
What impact does all that unofficial lending have on the property market? "It's hard to assess by just how much but if first home buyers can spend more, thanks to loans from their parents, it will put as they say 'upward pressure' on house prices," says Vince Scully, financial adviser and founder of Life Sherpa. In other words, the Bank of Mum and Dad may actually be compounding housing affordability problems.
Bank of Mum and Dad Loan Agreements: How to Protect Everyone
When lending money to family members, it’s crucial that you keep proper documentation. Without a formal loan agreement, you can find yourself in a dispute—especially if your child separates from their partner or if you need the money back unexpectedly.
Why You Need a Formal Loan Agreement
In Australia, there's a legal presumption that money given by parents to their children is a gift, not a loan, unless proven otherwise. This "presumption of advancement" means that without proper documentation, you may have no legal right to reclaim their money.
"In Australia, it is presumed that money given by a parent to their child, regardless of age, is a gift, unless that presumption is rebutted," explains Umbrella Family Law. To rebut this presumption, you must prove the money was intended as a loan when it was advanced.
Essential Elements of a Bank of Mum and Dad Loan Agreement
A comprehensive loan agreement should include:
- Names and contact details of all parties involved
- Loan amount and purpose
- Repayment schedule (monthly, quarterly, lump sum, etc.)
- Interest rate (if any)
- Security arrangements (e.g., caveat or second mortgage on the property)
- Default provisions (what happens if repayments aren't made)
- Special conditions (e.g., what happens if the child separates or sells the property)
- Signatures of all parties, including the child's partner
> "You still have to treat this like a business deal! The 'bank of mum and dad' loan agreement has to be clearly described in writing and each party has to get independent legal advice. Sadly, just a handshake and a hug aren't good enough." - Australian Family Lawyers
Step-by-Step: Creating a Watertight Loan Agreement
- Discuss terms openly with your child and their partner
- Consult a solicitor experienced in property and family law
- Draft a formal agreement covering all key points above
- Ensure all parties get independent legal advice before signing
- Sign the agreement in front of an independent witness
- Register security (if applicable) on the property title
- Keep records of all repayments made under the agreement
Protecting Your Money in Case of Relationship Breakdown
If your child separates from their partner, your loan could be at risk without proper documentation. In family law disputes, the court will consider whether the money was a gift or a loan when dividing assets.
To maximise protection:
- Register a caveat or second mortgage on the property title
- Consider a Binding Financial Agreement (BFA) between your child and their partner that acknowledges the loan
- Ensure all parties (including your child's partner) sign the loan agreement
Tax Implications for Parents and Children
The Bank of Mum and Dad comes with important tax and Centrelink considerations that many families overlook, so make sure you’re informed.
Gifts vs. Loans: Tax Treatment
For Gifts:
- No gift tax exists in Australia
- However, large gifts can affect Age Pension eligibility
- Gifts over $10,000 per year (or $30,000 over five years) may still be counted as assets for Centrelink purposes for five years from the date given
For Loans:
- Interest-free loans: Generally no immediate tax implications, but Centrelink may treat the outstanding balance as an asset
- Interest-bearing loans: You must declare interest income on your tax return
- Forgiven loans: If later forgiven, may be treated as a gift for Centrelink and family law purposes
Centrelink Implications for Retirees
If you are receiving or planning to apply for the Age Pension, you should be particularly careful. Centrelink applies strict gifting rules that could affect pension eligibility.
"One of the risks is that opening the Bank of Mum and Dad could have implications for the income and asset test needed to access the aged pension," explain financial experts. "Where parents are giving money to their children, then that does have an impact, particularly for people where parents are at the aged pension age and whether they qualify for that or not."
Capital Gains Tax Considerations
If you sell investments to raise funds for your children, capital gains tax (CGT) may apply. Similarly, if you act as guarantors and your property is called upon, CGT may apply if it's an investment property rather than your primary residence.
Family Law Implications
In the event of your child's relationship breakdown, the treatment of your financial assistance will depend on how it was documented:
- Undocumented gifts are typically considered a contribution on behalf of your child but may be lost in a property settlement
- Properly documented loans are generally treated as a liability of the relationship that must be repaid before assets are divided
- Guarantor arrangements put your property at risk if your child and their partner cannot meet mortgage repayments after separation
Bank of Mum and Dad Calculator: How Much Should You Lend or Borrow?
Before lending or gifting money, it's crucial to work out what you can afford—without risking your own financial security.
Factors to Consider Before Lending
- Your own retirement needs: Will this affect your retirement lifestyle or security?
- Emergency funds: Will you still have enough savings for unexpected expenses?
- Fairness to other children: How will this affect estate planning and family relationships?
- Your child's capacity to repay: If it's a loan, can they realistically meet the repayment schedule?
- Your future needs: Could you need these funds for aged care or medical expenses?
Sample Calculation
Let's say your child needs a $100,000 deposit for a $700,000 property:
- They've saved $60,000
- The gap is $40,000
- You're considering lending $40,000 at 3% interest over 10 years (i.e. similar to inflation)
This arrangement would cost your child $386 per month—significantly less than renting while they save, but still a substantial commitment on top of their mortgage.
The Impact on Your Retirement
Before lending, calculate how this might affect your retirement:
- Opportunity cost: $40,000 invested at 5% over 10 years would grow to approximately $65,000
- Income reduction: If the $40,000 was generating 4% income, that's $1,600 per year less in your pocket
- Superannuation impact: Taking $40,000 from your super could significantly reduce your retirement income
> Tip: Don't lend or gift more than you can afford to lose. Use a calculator and review your budget carefully.
Should You Lend Money to Help Your Child Buy a Home?
Helping your child enter the property market can be rewarding, but it's not without risks. Here's what to consider before opening the Bank of Mum and Dad.
Questions to Ask Yourself
- Can I afford to lend or gift this money without impacting my own lifestyle or retirement?
- Do I need the money back—and if so, when?
- How will this affect my relationship with my child (and their partner)?
- What happens if my child separates or can't repay the loan?
- Have I treated all my children fairly?
Pros and Cons of Parental Support
Warning Signs to Watch For
Be cautious about lending if:
- You're dipping into your retirement savings
- Your child has a history of financial irresponsibility
- You're feeling pressured into providing assistance
- You can't afford to lose the money if things go wrong
- Your child's relationship seems unstable
Checklist for Parents
Before lending:
- Review your own finances and retirement plans
- Discuss the arrangement openly with your child (and their partner)
- Decide if it's a gift, loan, or guarantee
- Document everything in writing
- Seek legal and financial advice
- Consider alternatives like Futurerent (see next section)
Alternatives to the Bank of Mum and Dad: Futurerent and Other Options
If you want to help your child but don't have cash on hand—or don't want to risk your own financial security—there are alternatives.
Futurerent: A Smarter Way to Access Property Funds
Futurerent offers property investors a unique solution: access up to $100,000 of your rental income upfront without taking on new debt.
How Futurerent Works:
- As a property investor, you can access up to two years of rental income in advance (capped at $100,000)
- The application process takes just minutes, with approval typically within 48 hours
- You get the funds as a lump sum that you can use for any purpose—including helping your children
- Repayment happens automatically through your rental income over 1.5 to 3 years
- You continue to collect at least 20% of the rent during the repayment period to cover basic property expenses
Key Benefits for Property Investors:
- No new debt on your credit file
- No impact on your borrowing capacity
- No repayments from your own pocket
- No need to refinance existing loans
- Fast access to funds (typically within two business days)
Real-Life Example: Using Futurerent to Help Your Child
John's Story
> John owns an investment property in Brisbane generating $30,000 in annual rent. He wanted to help his daughter with a deposit for her first home but didn't want to refinance his own property or dip into his retirement savings. Using Futurerent, John accessed $60,000 of his rental income upfront, which he gave to his daughter for her deposit. The advance is being repaid through his rental income over 3 years, with John still receiving 60% of his monthly rent. This allowed him to help his daughter without compromising his own financial position or retirement plans.
Comparing Your Options
When to Consider Futurerent
Futurerent might be right for you if:
- You own an investment property with steady rental income
- You want to help your child without increasing your own debt
- You don't want to risk your retirement savings
- You need funds quickly (within days rather than weeks)
- You want flexibility and minimal paperwork
Closing Thoughts: Making the Right Move for Your Family
The Bank of Mum and Dad has become a crucial part of Australia's property landscape, helping thousands of young Australians achieve the dream of homeownership. However, parental support comes with significant risks that you need to manage carefully.
Before lending or gifting money to your children, consider:
1. Your own financial security: Don't compromise your retirement to help your children
2. Proper documentation: Always formalise arrangements with written agreements
3. Tax and pension implications: Understand how your assistance might affect your eligibility for government benefits
4. Family dynamics: Consider how financial assistance might affect relationships with all your children
5. Alternatives like Futurerent: Explore options that allow you to help without risking your financial future
By taking a thoughtful, well-documented approach to family financial assistance, you can help your children enter the property market while protecting your own financial security. And remember—there are innovative alternatives like Futurerent that can provide the flexibility you need without the risks of traditional lending.
This guide provides general information only. Please consult a qualified professional for advice tailored to your situation.
FAQs: The Bank of Mum and Dad in Australia
What is the Bank of Mum and Dad in Australia?
The Bank of Mum and Dad refers to parents who provide financial assistance to help their children buy property in Australia, typically through gifts, loans, or acting as guarantors on home loans. According to recent data, it's now estimated to be Australia's fifth-largest mortgage lender, with parents contributing approximately $35 billion annually to property purchases. This informal lending institution has become increasingly important as housing affordability continues to decline across major Australian cities.
How common is it to borrow from parents to buy a house?
More than 60% of first-home buyers in Australia now receive financial help from their parents, with the average contribution around $33,278 according to Finder's research. This percentage has grown significantly over the past five years as property prices have outpaced wage growth, making it increasingly difficult for young Australians to save a deposit. The trend is particularly pronounced in Sydney and Melbourne, where median house prices require first-home buyers to save for nearly a decade to accumulate a 20% deposit.
What are the tax implications of a Bank of Mum and Dad loan?
While there's no gift tax in Australia, gifts may affect Centrelink entitlements, particularly for parents who are receiving or planning to apply for the Age Pension. For loans, parents must declare any interest received as taxable income on their annual tax return, and proper documentation is essential to distinguish between gifts and loans for both tax purposes and potential family law disputes. Large gifts over $10,000 per year (or $30,000 over five years) may be subject to Centrelink's gifting rules, potentially affecting pension eligibility for up to five years after the gift is made.
Should I lend my child money to help them buy their first home?
Lending money to your child can be a wonderful way to help them enter the property market, but it's essential to consider your own financial security first, particularly your retirement plans and emergency funds. Before proceeding, seek professional legal and financial advice to understand the implications for your tax position, pension eligibility, and estate planning. Remember that you should never lend money you can't afford to lose, and always document the arrangement formally to protect all parties involved.
How do I create a Bank of Mum and Dad loan agreement?
A comprehensive loan agreement should outline the amount, purpose, interest rate, repayment schedule, security arrangements, and what happens in case of default or if your child separates from their partner. It's best drafted by a solicitor experienced in property and family law, and should be signed by all parties involved, including your child's partner, to ensure it's legally binding and recognised in potential family law proceedings. For additional protection, consider registering a caveat or second mortgage on the property title, which provides security for your loan and prevents the property from being sold without your knowledge.
Are there alternatives to the Bank of Mum and Dad?
Yes, alternatives include using Futurerent to access rental income upfront if you're a property investor, refinancing your existing property, using a family guarantee (limited to a portion of the loan), or exploring shared equity arrangements. Futurerent offers a unique solution for property investors, allowing access to up to $100,000 of rental income in advance without taking on new debt or affecting borrowing capacity. Each option has different risk profiles and benefits, so it's important to compare them carefully and seek professional advice before making a decision.
Is the Bank of Mum and Dad Australia's biggest mortgage lender?
If counted as a formal lending institution, the Bank of Mum and Dad would rank between the fifth and ninth largest mortgage lender in Australia, with an estimated $35 billion in loans annually according to Digital Finance Analytics. This places it ahead of established banks like ING, Macquarie Bank, and HSBC in terms of lending volume. The significant scale of parental lending highlights the growing affordability challenges in the Australian property market and the increasing reliance on intergenerational wealth transfer for property ownership.
How can I help my child with a deposit for a house?
You can help your child with a deposit by gifting or lending money directly, acting as a guarantor on their loan (which can reduce or eliminate their deposit requirement), using equity from your own property through refinancing, or considering alternatives like Futurerent if you're a property investor. Each approach carries different legal, tax, and financial implications, so it's crucial to seek professional advice before proceeding. The best option depends on your specific financial situation, your child's circumstances, and your long-term financial goals, including your retirement plans and estate planning considerations.
What happens if my child separates after I lend them money?
Without a formal loan agreement, your contribution may be treated as a gift in family law proceedings and potentially lost in a property settlement, with the court considering it a contribution made on behalf of your child to the relationship. A properly documented loan agreement, preferably secured by a registered caveat or second mortgage on the property, provides stronger protection by establishing the money as a liability of the relationship that must be repaid before assets are divided. For maximum protection, consider having your child and their partner sign a Binding Financial Agreement (BFA) that specifically addresses how your loan will be treated in the event of separation.
For more information on property investment, equity release, and innovative finance solutions, visit Futurerent's resources on cash-out refinancing, equity release, and property investment strategies.
Remember: This guide is for general information only and does not constitute financial, legal, or tax advice. Please consult a qualified professional before making any decisions regarding property finance or family lending arrangements.
