Young buyers using the Bank of Mum and Dad to snag a home could soon be $500,000 richer than other buyers their age, according to startling new data.
Modelling by financial adviser Your Future Strategy (YFS) found an early inheritance from their parents could help 30 year-old buyers enter the property market much earlier than their friends, allowing them to skip the massive price hikes expected to come.
YFS co-founder Gareth Croy said timing was a major factor in Australia’s growing class divide, even between people expecting the same generational wealth.
“I’ve seen too many younger people doing the right thing and saving for their deposit, but the market is just running at a rate where they can’t keep up,” he said.
Home buyers entering the property market with the Bank of Mum and Dad could be $500,000 richer than their peers within 20 years of home ownership.
“They’re just constantly chasing it, because the pricing is just moving at a rate faster than their savings capacity.”
Your Future Strategy co-founder Gareth Croy said a 30 year-old buyer could save thousands in the long run if they were able to leverage their inheritance today.
In the model, YFS charted the growing wealth of two people: each of them living in Sydney in 2026, earning $97,000 a year with the same expenses.
Person A received $100,000 from their parents at 30 and bought a home at 31, while Person B saved from 30 to 36, getting the same inheritance by the time they were 50.
While both received the same money from their parents and paid a 10 per cent deposit, the five-year delay in entering the market harmed how much Person B could earn.
Between two 30 year-old Sydneysiders expecting the same inheritance, the buyer receiving help to enter the market had much less left to pay on their mortgage. Picture: Knight Frank
When Person A was able to afford their home, house prices were estimated to sit at a median of $1.58 million. Meanwhile, Person B was forced to buy at a median of $2.08m, giving them significantly less borrowing power.
After reaching 50, Person A’s loan was estimated to be at $824,849. Meanwhile, Person B’s loan was estimated to sit at around $1.347m.
With Person A able to gain more equity and pay less on their mortgage, they ended up having $504,182 more than Person B by the end of the model.
Parental help allowed one buyer to enter the market five years before the other, making their home $500,000 cheaper and giving them less to repay on a 10 per cent deposit.
Mr Croy added the model was an indicator of current trends, rather than a prediction of the future.
“Obviously the elephant in the room is next Tuesday, and what happens with the Treasury and the federal budget,” he said, “in particular with the Capital Gains Tax and Negative Gearing. Our model doesn’t hypothesise into that direction and what that looks like.”
At the end of the 20-year modelling based on current trends and an annual property growth of 5.65 per cent, the median home price was expected to sit at $4.5 million.
Mr Croy said the model was a possible indication of the future, if big changes did not happen with the upcoming federal budget.
For buyers without access to the Bank of Mum and Dad, Mr Croy suggested looking into leveraging your superannuation to help enter the market earlier.
To parents, he added $100,000 can come from more than just cash, including leveraging your own property’s equity.
“There’s a big difference between a handout and a leg up,” he said. “It’s worth people looking into, because [these methods] will help them get there a little quicker.”
Buyers without parental help were advised to seek investing with their superannuation, while parents were told to consider leveraging their home’s equity if they wanted to help.
Mr Croy said while helping your kids out earlier can be best for them in the long run, it is important to do so without putting yourself at financial risk.
“Giving that helping hand to children means that $100,000 is less capacity for your own wealth building,” he said. “Depending on the parents’ circumstances … we may or may not recommend it.”
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