How to navigate property buying with the Bank of Mum and Dad

Housing affordability has become a major issue all around Australia as property prices move further out of reach for a growing number of first home buyers. 

Unsurprisingly, the Bank of Mum and Dad is now one of the key players in the property market as parents look to share their wealth with their children and help them get onto the ladder where they otherwise couldn't. 

But mixing money and family isn't always as simple as it might seem — especially in the high-stakes world of real estate — and more and more families are finding this out the hard way. 

Thankfully, there are ways to safeguard against nasty conflicts and ensure the process is a happy and successful one for both children and parents.

Intergenerational buying is becoming the norm

Australian home prices have skyrocketed over the past few years especially, far outpacing income growth at a time when cost of living pressures are weighing heavily and housing is in short supply. 

As a result, the Bank of Mum and Dad is now a huge player in the real estate space, becoming one of the top ten lenders in the country as parents contribute tens of billions of dollars a year to their children's property hunt. 

As a buyer's agent, seeing parents getting involved in their kids' first home purchases is nothing new, but there has been a clear rise in this intergenerational buying over the past 18 months. 

Another key change has been the level of parental involvement. Mums and dads seem to want to be more hands-on, taking on a far more active role throughout the process. 

On the one hand, it's understandable for parents to want to have input when they're contributing a significant amount of their hard-earned savings.

But having too many cooks in the kitchen is often overcomplicating the process. Conflicting views are making it harder for these buyers to agree on an appropriate property, leading to missed opportunities and rising tensions. 

Without establishing clear boundaries from the outset, buying a first home can go from being a joyful milestone worth celebrating to a stressful ordeal that doesn't net the right result. 

The lines have become blurred around who's steering the ship

As parental involvement in the buying process has ramped up, it's becoming harder to work out who's really in control. 

On a number of occasions, I've seen kids and their parents come to the market with completely different priorities and preferences for what makes the right home. 

A lack of boundaries when it comes to decision-making has led to great properties being passed up because Mum and Dad didn't like the kitchen layout or couldn't agree on tiled versus timber floors. 

While these kinds of features might be important for somebody who's decades into their property journey, they're often the least of a first home buyer's worries as they prioritise more fundamental aspects like location and budget. 

What constitutes a deal-breaking feature can be wildly different across generations, and that makes it infinitely more difficult to find a property that ticks everybody's boxes, especially in today's competitive and fast-paced market. 

That's why clear communication, boundary-setting and allocation of control need to be established from the very beginning to avoid conflict. 

There's also the financial aspect to consider. Introducing money to any relationship can be inherently risky, especially without clarity around roles and terms. 

The more you can establish ground rules right from the outset, the better the chance that everybody can make it through to the other side with an ideal outcome.

How to navigate the intergenerational buying minefield

Having seen my fair share of both successful and unsuccessful arrangements between parents and children purchasing property, some key do's and don'ts have become obvious. 

Firstly, it's important for all parties to sit down and work out who's really going to be making the decisions. 

As a parent, are you willing to take a back seat on the journey, or will you have the power to veto certain things? And as their child, how much control are you willing to hand over in exchange for financial help? 

Writing out individual lists of must-haves can be a good starting point for understanding where priorities might conflict. If nobody can agree on the essentials, some negotiation will need to take place to bring everybody back to the same page with a unified mission. 

Providing a buyer's agent with a clear brief can take a lot of guesswork out of the process. Once that brief is handed over, it's important to trust your agent to do their job effectively and pinpoint the properties that best suit your budget and situation. 

Having an honest conversation about money is critical as well. Is the parental contribution a loan or a gift? Will interest be expected when repaying? How about a portion of capital growth upon sale? 

Human nature dictates that as soon as money and multiple people are involved, things can go south very quickly, so speaking with a solicitor to establish a clear plan for the financials is a great way to ensure everybody's covered. 

At the end of the day, parents being able to help their children enter the property market should be an amazing gift for the future. 

As long as the process is followed with good communication, honest boundary-setting and clear financial safeguards, you can reach an outcome that everyone will be happy with. 

Michelle May is the principal at Michelle May Buyers Agents in Inner Sydney, host of the Buy Your Side podcast, and has more than 25 years of property buying experience.