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New research has revealed that first home owners in a number of NSW local government areas (LGAs) are at risk of losing their properties, with parental gifts outlined as the probable culprit.
The Bank of Mum and Dad (BoMaD) was the ninth-largest Australian lender in 2021, dishing out an astonishing $34 billion in loans throughout the year. However, with BoMaD lending comes a greater risk of default, with experts warning that borrowers who loaned money from their parents to purchase are twice as likely to default on their mortgage within five years, according to analysis from the National Property Group.
A staggering 60 per cent of first home buyers across the state received financial assistance from their parents to fund their purchase, most notably in Sydney’s Blacktown and Ryde, with Queanbeyan, Albury and Coffs Harbour also seen as hotspots.
These five markets have been labelled as BoMaD-backed property markets and, as such, present a greater risk of loan defaults, as a cooling property market and rising interest rates create complicated financial pressures.
Don Harb, chief operating officer at National Property Group, said the current real estate climate presents existing BoMaD borrowers with an opportunity to conduct a much-needed financial assessment.
“Our data identifies key markets across metro and regional NSW where home values are starting to fall, which increases the risk of negative equity for some previous purchasers. The LGA of Ryde has seen a 16.8 per cent fall in property values,” Mr Harb said.
“We’re also seeing slight dips in home prices in regional LGAs such as Queanbeyan. For BoMaD buyers and lenders these trends could signal that it’s time to assess their financial future.”
Nigel Horne, principal of Nigel Horne Real Estate in Albury, has stated that he is already seeing firsthand the impact of rising regional property prices, driven by the pandemic, interest rises and demand, is having on buyers.
“Throughout our dealings with buyers, (family) financial assistance to fund a deposit has been a factor. Since the pandemic took effect in 2020, property values have increased significantly in our region. In my experience, demand has not slowed and there is still a shortage of properties,” he said.
While supply concerns and rising interest rates will impact and influence borrower decisions, resulting in a potential larger uptake of BoMaD lending moving forward, Mr Horne has warned that first home buyers maybe need to reconsider their purchasing criteria, including understanding the size, style, and age of the home they can purchase may differ to what they could have purchased prior to March 2020.
Expert warnings come just weeks out from all major banks adopting the new banking code of practice from 1 July, which will see more scrutiny placed on the financial assessment of prospective borrowers who have received assistance from the BoMaD.