War between boomers and millennials breaks out when children refuse to pay their parents

A generational war is breaking out between baby boom parents and their millennial children as the Reserve Bank’s aggressive interest rate hikes trigger legal disputes.

Unaffordable properties mean first home buyers are increasingly turning to the “Bank of Mum and Dad” for help accessing property.

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

But since the RBA’s 13 rate hikes began in May 2022, younger borrowers have found they cannot pay their parents and pay 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, director at Barry Nilsson, said parents were now turning to legal action to obtain the refund.

“Well-meaning parents are being dragged into the legal process to recover money they have provided to help their adult children enter the housing market, only to see their children’s relationship dissolve,” he said.

Parents who had lent or gifted their children also encountered complications when their children separated from their spouse after purchasing property together.

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

“As entry into the property market is difficult and interest rates continue to rise, we expect an increase in legal action in cases where the Bank of Mum and Dad has lent money to their children, but those couples then split up.” .

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

This means that first-home buyers turn to their parents for help even purchasing a more affordable property, only to struggle with payments.

A person with an average income and a salary of $95,581 would barely get approval from the bank 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, allowing them to buy a unit in Sydney or a suburban home on the outskirts of Melbourne.

It’s no surprise they are turning to their parents, as Jarden Australia estimates that parents were pumping $2.7 billion into the property market just to help their children.

A survey of 282 mortgage brokers showed that the youngest borrowers received an average of $92,000 from their parents.

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

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

This means that first-home buyers were “increasingly reliant on being able to access family assistance and were therefore increasingly influenced by family wealth and home ownership”.

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

But that debt-to-income ratio in Sydney, even with a 20 per cent deposit, is now 12, meaning only a couple earning $186,000 between them can afford to repay a loan.

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