How Parental Financial Gifts Are Helping First Home Buyers Bridge the Deposit Gap

How Parental Financial Gifts Are Helping First Home Buyers Bridge the Deposit Gap

Buying your first home is often described as a rite of passage, a milestone that represents security, stability, and independence. Yet for many Australians, that dream feels like it’s slipping further out of reach. Property prices continue to climb at a pace that wages simply can’t keep up with. Add to that the rising cost of living and relentless rental market pressures, and saving for a deposit can feel like trying to fill a bucket with a hole in it.

Even for diligent savers who sacrifice holidays, dining out, or other lifestyle luxuries, reaching the golden 20% deposit threshold needed to avoid costly Lenders’ Mortgage Insurance (LMI) is a mammoth task. And, that’s before accounting for stamp duty and upfront costs.

Enter the “Bank of Mum and Dad.” Increasingly, young Australians are relying on parental financial gifts to help bridge the deposit gap. This family support can mean the difference between waiting another decade to buy or stepping confidently into the market today. But while these gifts are often life-changing, they are far from straightforward. Financial, legal, and emotional considerations must all be navigated carefully.

In this article, we’ll explore:

• Why parental gifts have become so vital in today’s property market
• How they are typically structured (gift vs loan)
• Lender requirements and legal considerations
• The benefits and risks for both parents and buyers
• How these gifts are reshaping the housing market
• Practical tips for parents and first-home buyers

The Expanding Deposit Gap

Over the last five years, property values have surged across Australia. CoreLogic data (as reported by The Guardian in April 2025) shows the median home value has risen by roughly $230,000 since 2020, that is a jump of around 39%.

In Sydney, the median home now sits above $1 million, while Melbourne is also hovering around $1 million. Even in smaller capitals, price growth has been substantial. Meanwhile, wage growth remains modest, with the ABS reporting only 4.5% growth over the year to May 2025.

For many renters, the situation is particularly dire. Vacancy rates below 1.5% mean people are spending more than a third of their income just to keep a roof over their heads. Saving for a 20% deposit feels increasingly impossible.

To put this in perspective:

• On a $750,000 property, a 20% deposit is $150,000 (before stamp duty and fees).
• With household savings ratios falling to just 4.2% in June 2025, most would need well over a decade to reach that figure independently.

This imbalance has created a two-tier market: those with family support who can buy relatively early, and those without, who risk being locked out altogether.

The Growing Influence of the Bank of Mum and Dad

The so-called “Bank of Mum and Dad” is no longer a casual expression, it’s one of the largest financiers in the country. According to API Magazine, over 60% of first-home buyers now receive parental support, with the average gift sitting at $74,000 in 2025. Collectively, this represents more than $35 billion injected into the market by parents.

For many families, the motivation is simple: help their children achieve stability, independence, and security in a market stacked against them. For buyers, the impact is transformative, entering the market earlier means avoiding further price rises, building equity sooner, and starting the long-term wealth journey ahead of peers.

Yet, this also underscores a deeper issue: intergenerational inequality. Those with access to family wealth are propelled forward, while others are left waiting, renting, or compromising on location.

Gift or Loan: What’s the Right Structure?

Parental help typically takes two main forms:

From a lender’s perspective, a gift is far more favourable. A genuine, non-repayable gift strengthens the borrower’s position and reduces risk. Conversely, a loan must be declared as a liability, which diminishes borrowing capacity.

That said, home loans may still be appropriate in certain circumstances, particularly if parents want the money repaid to maintain fairness among siblings or to preserve retirement security. In this case, a properly drafted loan agreement (detailing repayment terms, interest rates, and schedules) is essential.

Whichever route families choose, clarity is critical. Vague promises or “handshake deals” are fertile ground for future disputes.

Lender Requirements and Documentation

Banks are meticulous when it comes to verifying deposit sources. To ensure compliance and reduce risk, most lenders will require:

• Gift letter or deed: Signed by parents, confirming funds are non-repayable.
• Proof of transfer: Bank statements showing the source and receipt of funds.
• Evidence of savings discipline: Some lenders want part of the deposit to come from the buyer’s own savings (often held for three months or more).

Mortgage brokers are particularly valuable here. They can identify which lenders accept fully gifted deposits and which prefer a blend of genuine savings and family support, saving buyers time and disappointment.

The Benefits of Parental Gifts

Parental contributions deliver several immediate and long-term benefits:

1. Buy Sooner – Avoid years of renting while trying to save as prices climb.
2. Save on Borrowing Costs – A larger deposit reduces the LVR, potentially eliminating LMI (often $10k–$30k).
3. Better Loan Terms – Stronger equity often secures lower interest rates and flexible loan features.
4. Focus on Repayments – Buyers can concentrate on servicing the loan rather than endlessly chasing a deposit.
5. Build Wealth Earlier – The sooner you enter the market, the sooner you benefit from property growth and compounding equity.

The Risks and Pitfalls

While the benefits are obvious, risks shouldn’t be brushed aside:

• Parental Financial Strain: Large gifts can deplete retirement funds or super. Parents must ensure they won’t compromise their own security.
• Sibling Tension: Unequal support may cause resentment. Transparency helps maintain harmony.
• Relationship Risks: If couples buy with gifted money and later split, disputes can arise. Legal advice protects all parties.
• Market Inequality: Relying on family wealth can deepen socioeconomic divides.
• Lack of Documentation: Without formal records, gifts may later be treated as loans in estate disputes or family law proceedings.

How Family Gifts Are Reshaping the Property Market

Parental support is doing more than just helping individuals, it’s shaping the entire housing market. Buyers with access to gifts can bid more confidently, propping up demand even in high-interest environments.

Research from the Australian Housing and Urban Research Institute confirms that intergenerational wealth transfers are widening the gap in homeownership rates. Simply put, the “haves” are buying earlier and in better suburbs, while the “have-nots” are left behind.

Government schemes such as the First Home Guarantee or state-based stamp duty concessions certainly help, but they pale in comparison to the impact of a $50k–$100k family contribution.

Tips for Using Family Gifts Wisely

For Parents:

• Review your retirement and financial position before gifting.
• Always document the gift or loan formally.
• Seek independent legal and financial advice.
• Be transparent with all children to avoid resentment.
• Explore alternatives, such as acting as a guarantor, if a direct gift isn’t feasible.

For First-Home Buyers:

• Provide all documentation requested by your lender.
• Keep saving even with family help, it demonstrates financial discipline.
• Borrow within your means; don’t overextend just because you can.
• Take advantage of government grants and concessions.
• Budget realistically for ongoing costs (repayments, rates, maintenance).

Government Support Programs

While family support plays a growing role, government initiatives remain an important piece of the puzzle:

These schemes can often be combined with parental gifts, giving first-home buyers a multi-pronged advantage.

Final Thoughts

The rise of the Bank of Mum and Dad is a reflection of Australia’s housing reality. For many, it’s the only way to bridge the ever-widening deposit gap. When handled with foresight, clarity, and proper documentation, family gifts can be a springboard into homeownership, helping buyers avoid costly delays and start building wealth earlier.

But this support shouldn’t come at the expense of parental security or family relationships. Open communication, professional advice, and careful structuring are the keys to ensuring everyone benefits.

For first-home buyers, parental gifts can open the door, but the responsibility of managing the loan, budgeting wisely, and building financial stability rests squarely on their shoulders.

With thoughtful planning, family support can transform homeownership from a distant dream into a tangible reality.

Ready to take the next step in your property journey? At RateSeeker, we help Australians cut through the noise and find the right loan with competitive rates tailored to their goals. Whether you’re buying your first home, refinancing, or expanding your investment portfolio, our advisers provide guidance that’s clear, transparent, and personalised.Don’t leave your financial future to chance, speak to a mortgage expert today and discover how much you could save.