War between boomers and millennials erupts as children refuse to pay back their parents
A generational war is brewing between baby boomer parents and their millennial children as the Reserve Bank’s aggressive interest rate hikes spark legal disputes.
Unaffordable properties mean first home buyers are increasingly turning to the Bank of Mum and Dad for help getting on the property ladder.
In many cases, parents lent money to their children.
But since the RBA’s 13 rate hikes began in May 2022, young borrowers have found they can’t pay off their parents and service their mortgage at the same time.
With the Reserve Bank interest rate now at a 12-year high of 4.35 per cent, family law specialist Will Stidston, director at Barry Nilsson, said parents were now resorting to legal action to seek compensation.
“Well-intentioned parents are being dragged into legal proceedings to recover money they provided to help their adult children enter the property market, only to see their offspring’s relationships fall apart,” he said.
A generational war is brewing between baby boomer parents and their millennial children as the Reserve Bank’s aggressive interest rate hikes spark legal disputes.
Parents who lent or gifted to their children also faced difficulties when their child separated from their spouse after purchasing property together.
“Many well-meaning parents go into this blindly and then come to me when the relationship has broken down and are shocked to learn that the money cannot be repaid under a standard loan agreement because the family courts have considerable discretion. ‘ Mr Stidson said.
“As entry into the property market is difficult and interest rates are still rising, we expect to see an increase in lawsuits in cases where the Bank of Mom and Dad provided a loan to their children but the couples then split up.”
The average house price in Sydney has risen 12.5 per cent this year to an even more unaffordable $1.397 million, despite RBA rate hikes, according to CoreLogic.
This means first home buyers are turning to their parents for help to buy a more affordable property, only to struggle with repayments.
A median income person earning a salary of $95,581 would be unlikely to get bank approval to borrow $573,486, more than six times his salary.
But if they could get a mortgage, they would need a 20 per cent deposit of $143,368 just to buy the $716,841 house, which could buy an apartment in Sydney or a house in suburban Melbourne.
It’s no surprise they’re turning to their parents: Jarden Australia estimates parents have $2.7 billion invested in the property market simply by helping their children.
A survey of 282 mortgage brokers found that young borrowers received an average of $92,000 from their parents.
Jarden’s chief economist Carlos Cacho sent an email to clients last month describing unaffordable housing as a generational gap, with parental support determining one’s wealth.
Unaffordable properties mean first home buyers are increasingly turning to the Bank of Mum and Dad to help them get ahead (Sydney auction pictured).
With the Reserve Bank cash rate now at a 12-year high of 4.35 per cent, family law specialist Will Stidston, a director at Barry Nilsson, said parents were now resorting to legal action to seek compensation.
“Home ownership is increasingly becoming a class divide in Australia as housing affordability, particularly in Sydney, continues to deteriorate,” he said.
This meant that first home buyers were “increasingly dependent on being able to access assistance from family and were therefore increasingly influenced by family wealth and home ownership.”
When baby boomers entered the property market in the early 1980s, the average priced home in Sydney and Melbourne cost less than four times the average full-time salary.
But Sydney’s debt-to-income ratio, even with a 20 per cent deposit, is now 12, meaning only a couple earning $186,000 between them can afford to service the loan.
In Melbourne, where the average house price is $943,725, the equivalent debt-to-income ratio is 7.9.