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Lending from parents to finance home deposits has seen exponential growth over the past year, according to a recent report.
The Australian Financial Times reported that the Bank of Mum and Dad – the common term used for lending from parents – has grown to become Australia’s ninth largest residential mortgage lender over the past 12 months, with the average loan amount rising to $89,000.
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And with about $34 billion in total loans, the Bank of Mum and Dad is now bigger than HSBC, AMP, and Bank of Queensland, according to data from research firm Digital Finance Analytics.
“Just about every auction I attend, there are parents nudging extra children to make a higher bid, or where parents are doing the bidding,” Kate Bakos, a buyers’ agent in Melbourne, told AFR. “Some parents are saying it’s their children’s inheritance in advance.”
However, experts are warning parents of the potential tax and social security implications of these loans.
“If your child pays interest on the loan, this needs to be recorded as income on your tax return, even though it’s a family member,” Mark Chapman, director of tax consultancy at H&R Block, told AFR. “Any interest paid by the parent will not be deductible because it is not incurred from any form of business activity.”
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