The stark warning to the Bank of Mum and Dad and why parents should STOP giving millennial children their first home deposits
- Bank of Mum and Dad to face more scrutiny to reduce financial welfare damage
- Lenders are worried parents are placing themselves at bigger financial liability
- There are fears loan guarantors aren't fully aware of risks they take for children
- Bank of Mum and Dad is ranked the ninth largest home lender in Australia
Parents have been urged to think twice about helping their children buy their first home because they risk losing their money altogether as the housing market plummets.
The Australian Prudential Regulation Authority fears that parents will be left destitute after investing in risky property leaving them unable to cope in their retirement.
Several banks are now issuing tougher terms for co-borrowers and have taken it on themselves to warn parents of the risks before they shell out for their children's deposit.
NAB now requires parents to prove they have obtained legal advice, the Financial Review reported.
Digital Finance Analytics (DFA) principal Martin North noted some children were not able to make their repayments, leaving parents shortchanged.
'Parents are being asked more questions by lenders because of concerns about the impact of rising debt from loans to their children on their retirement plans,' he said.
National Australia Bank, Commonwealth Bank of Australia, ANZ and Westpac Group will be tightening their policies on co-borrowers.
Parents have been urged to think twice about helping their children buy their first home over fears it will leave them destitute in their retirement (stock image)
The Bank of Mum and Dad is ranked as the ninth largest home lender in Australia and makes up more than $29 billion in outstanding home loans.
According to DFA, the typical loan has dropped from $88,000 in 2017 to $75,000.
The extra measures come after some parents were found to have avoided lawyers or contracts when taking out a loan.
Regulators noted this made them more financially liable and increased the risk of losing money, if their children were unable to make the repayments on time.
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'We are ensuring that what we communicate with our customers is transparent, clear and timely. We’re also ensuring that our customers are treated respectfully and fairly, and have the benefit of credit processes that support a responsible approach for lending,' NAB said.
Co-borrowers who also put their name on a loan must prove they understand the risks involved if they are not going to receive a substantial benefit from the loan proceeds.
Digital Finance Analytics (DFA) principal Martin North noted some children were able to make their repayments and are leaving parents shortchanged (stock image)
The Bank of Mum and Dad is ranked as the ninth largest home lender in Australia and makes up more than $29 billion in outstanding home loans (stock image)
