War between boomers and millennials erupts as children refuse to pay back their parents

A generational war is erupting between baby boomer parents and their millennial children as the Reserve Bank’s aggressive interest rate hikes spark legal disputes.

Unaffordable property means first-home buyers are increasingly turning to the ‘Bank of Mum and Dad’ for help getting on to the property ladder.

In many cases, parents have loaned money to their children.

But since the RBA’s 13 rate hikes began in May 2022, younger borrowers are finding they can’t to repay their parents and service their mortgage at the same time.

With the Reserve Bank cash rate now at a 12-year high of 4.35 per cent, family law specialist Will Stidston, the principal of Barry Nilsson, said parents were now resorting to legal action to be repaid.

‘Well-intentioned parents are being dragged into the legal process to get back money they have provided to help their adult children get into the property market, only to see their offspring’s relationship dissolve,’ he said.

Parents who had lent or gifted to their offspring also encountered complications when their child separated from their spouse after buying a property together.

‘Many well-meaning parents go into this blindly, then come to see me when the relationship has broken up and they are shocked to learn that the money may not be repaid under a standard loan agreement, as family law courts can exercise their considerable discretion,’ Mr Stidson said. 

‘With entry to the property market difficult, and interest rates still rising, we are anticipating increasing legal action from cases where the Bank of Mum and Dad have loaned money to their children, but those couples then separate.’

Sydney’s median house price has this year surged by 12.5 per cent to an even more unaffordable $1.397million, CoreLogic data showed, despite the RBA’s rate rises.

This means first-home buyers are turning to their parents for help to even buy a more affordable property, only to struggle with the repayments.

An average-income earner on a $95,581 salary would barely get bank approval to borrow $573,486, or more than six times their salary.

But if they could get a mortgage, a 20 per cent deposit of $143,368 would be needed just to buy a $716,841 home, which would buy a unit in Sydney or an outer suburban house in Melbourne. 

Little wonder they are turning to their parents with Jarden Australia estimating parents were injecting $2.7billion into the property market just helping their children. 

A survey of 282 mortgage brokers showed younger borrowers were receiving $92,000 from their parents, on average.

Jarden chief economist Carlos Cacho last month emailed clients to describe unaffordable housing as a generational divide, where help from parents determined someone’s wealth.

Unaffordable property means first-home buyers are increasingly turning to the ‘Bank of Mum and Dad’ for help getting on to the property ladder (pictured is a Sydney auction)

With the Reserve Bank cash rate now at a 12-year high of 4.35 per cent, family law specialist Will Stidston, the principal of Barry Nilsson, said parents were now resorting to legal action to be repaid

‘Home ownership is increasingly becoming a class divide in Australia as affordability, particularly in Sydney, continues to deteriorate,’ he said.

This mean first home buyers were ‘increasingly dependent on being able to access assistance from family and therefore increasingly influenced by family wealth and home ownership’.

When baby boomers entered the property market in the early 1980s, a median-price house in Sydney and Melbourne cost less than four times an average, full-time salary.

But that debt-to-income ratio in Sydney, even with a 20 per cent deposit, now stands at 12, which means only a couple earning $186,000 between them can afford to service a loan.

In Melbourne, where the mid-point house price is $943,725, the equivalent debt-to-income ratio is 7.9.