‘On the hook’: Falling home values threaten a huge source of Aussie home loans

Australia’s plummeting home prices are threatening to bury the country’s fifth largest lender: the bank of mum and dad.

New figures have revealed a 10 per cent national fall in home prices, currently forecast by ANZ, would leave the typical bank of mum and dad loan guarantor on the hook for many more years than planned.

These are loans where parents or family members use the equity in their own homes as security for their child’s mortgage – usually for the purpose of helping their children buy sooner with a better rate.

Guarantors are typically released once the borrower’s loan falls to 80 per cent of the property’s value – a tipping point that could take years longer to reach in a downturn.

HomeLoanRates.com.au modelling of ANZ’s price forecasts using ABS and RBA data showed mounting risk for parents who helped their kids buy homes.

Those who guaranteed 10 per cent of a $799,000 mortgage, the average owner occupier loan, would have to wait 11 years for their kids’ equity position to grow enough to untether the loan obligation.

That’s assuming prices dropped by the 10 per cent forecast by ANZ, followed by a period of flatter growth in values.

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The eleven year commitment as guarantor would be four years longer than in an environment where prices were rising, according to the HomeLoanRates study.

The bank of mum and dad functions as the fifth-largest mortgage lender in Australia, with parents contributing about $35 billion annually to helping their children buy, a figure just behind the big four banks.

Peter Drennan, the head of research at Primara, which was consulted for the study, said parents who used equity in their home to help their kids buy carried risk on both sides of the ledger.

A forecast 10 per cent fall in national home prices would trim about $120,000 off the value of the average Australian home.

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It would mean their children’s home would decline in value along with their asset, the property propping up the guarantee on their kids’ home.

“Families often go in expecting a year or two at most,” Mr Drennan said.

“If prices don’t recover, some guarantors could be on the hook for more than a decade, whether it’s their child’s first home or the next step up.

“That exposure sits against their own home, not just their savings.”

The analysis revealed that a 10 per cent national price fall would also leave the typical first-home buyer who purchased in the past year underwater with their loan.

The average first home buyer loan was $610,063 in the June 2026 quarter, implying a purchase price of $642,172 on a 5 per cent deposit.

A 10 per cent price fall would erode the value of the home down to $578,000, leaving the owner in a negative equity position of $32,000.

If that buyer defaulted and the bank sold straight away, before any of the loan had been paid down, a sale after 3 per cent selling costs would recover about $561,000, according to HomeLoanRates.

That would leave an estimated $49,000 shortfall for guarantor parents to cover, secured against their own home.

Wealth commentator Noel Whittaker has also voiced concerns about the risk of family support in a falling market.

“Even the Bank of Mum and Dad is becoming more cautious,” he said in a recent newsletter.

“Parents are asking why they should help their children buy a home today if they believe it may be cheaper tomorrow.”

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