Loans from mum and dad lead to greater strain: RBA

ns who get loans from their parents to buy their first property are twice as likely to later encounter financial stress, ask for help from friends and struggle to pay their power bills.

In research released on Monday, the Reserve Bank’s economic research department used figures from the Household, Income and Labour Dynamics (HILDA) survey of 17,000 ns to find that 30 per cent of people who needed help from their parents to pay for a deposit found themselves in financial stress.

Of those, 20 per cent would later ask for more help from family and friends, twice the rate of those who funded their deposit independently.

More than 15 per cent who received help from their parents later struggled to cover power bills, compared to 10 per cent of those who paid their deposit independently.

The findings come after a separate report from investment bank UBS found up to up to a third of n mortgages could be “liar loans” based on factually inaccurate information.

Reserve Bank researchers John Simon and Tahlee Stone found rising house prices meant fewer people were making the transition from renting than prior to the global financial crisis and warned this could have “significant longer-term consequences for the distribution of wealth in .”

The pair described the report as “bittersweet” with rising house prices requiring higher deposits but also making homeowners more financially secure than earlier cohorts.

The findings show the median first home buyer debt-to-annual income ratio has grown by 40 per cent since 2001. The typical first home buyer’s mortgage is now equivalent to more than three year’s wages.

n couples who are employed full time and have a tertiary education are more than twice as likely to become first homeowners compared to others, while a 30-year old is 2 percentage points more likely to become an homebuyer than an otherwise similar 25-year old.

“Overall, these findings suggest the most powerful drivers of becoming a first home buyer appear to be life cycle-related rather than economic factors,” the report said.

“People do not decide to become first home buyers because they get a promotion, but because they get older and enter into married and de facto relationships.”

The bank found, if anything, first homebuyers are paying down loans more quickly and are more secure than first home buyers earlier in the 2000s.

The report, which compared 2001-2008 with 2008-2014, said first home buyers are now less likely to have ever reported being behind schedule on their loan, having made late mortgage repayments or asking for financial help than the previous cohort.

“A plausible explanation for this finding is that those first home buyers who are able to save enough to meet the higher deposit requirement imposed by higher housing prices are also households who are less likely to experience subsequent financial difficulties after taking on a loan,” the bank said.

To assess whether financial assistance to first home buyers was distorting the figures the bank compared those who received financial assistance with their loan from family or friends to those that saved for their deposit independently

“Looking at indicators for financial stress, we find that first home buyers who received help with their loan are much more likely to have also received help from family and friends post purchase,” the bank said.

The bank said in some ways this was unsurprising.

“Parents willing and able to help their children are likely to continue to do so throughout their life. As such, it doesn’t necessarily follow that these households are more likely to, say, default on their loans,” the report said.

However, first home buyers who received help are also more likely to struggle to meet their mortgage repayments due to a shortage of money.

“This is more telling,” the bank said.

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