The Bank of Mum and Dad

06th Feb, 2026 | Live the Dream, Articles, First Home Buyer

How It Works & What to Consider in 2025

The ‘Bank of Mum and Dad’ (BOMAD) generally refers to financial help parents provide to their children to buy a home.

Lenders treat this help differently depending on its structure, which is typically a no-strings-attached gift, a formal family loan, or a guarantor arrangement.

Clear documentation is essential for a smooth home loan application, as it proves to lenders where the funds came from and what obligations are attached.

At a glance

What it is: Financial support from family to help you buy property.
Common ways to help: A cash gift, a structured family loan, or acting as a guarantor.
Why structure matters: It impacts your borrowing power, loan approval, and whether you pay LMI.
Where to confirm rules: Lender policies vary and every situation is unique.

What is the Bank of Mum and Dad?

When people say “the Bank of Mum and Dad,” they could mean lots of things: parents or grandparents helping with rent, pitching in for childcare, or covering bills to ease cost‑of‑living pressure. Here, we’re using “BOMAD” in a narrower sense: parents (or close family) helping their kids buy a first home.

That help usually takes one of three forms: a cash gift, a formal family loan, or acting as a guarantor with a limited guarantee. The structure matters because lenders treat each option differently.

2025 Snapshot:

Recent data highlights just how important family help has become and how it’s changing.

The Deposit Hurdle: Australian dwelling prices have risen approximately 51% since 2019. For buyers, that means a 20% deposit has jumped by about $66,000 to around $195,000, making family support more critical than ever (Mozo Bank of Mum and Dad Report 2025).^_[1]
A Shift to Gifting: The dynamic is changing from loans to legacies. In 2025, 75% of parents who provided financial help did not expect repayment, with 26% explicitly calling it a gift (Mozo Report, 2025).
Risk Awareness is Growing: Parents are becoming more cautious. The number of parents acting as guarantors has fallen from 15% in 2021 to just 8% in 2025. Instead, practical help like providing rent-free accommodation while saving is on the rise, increasing from 15% to 23% (Mozo Report, 2025).

Let’s explore each of these more commonly deployed methods in more detail.

1. The Gifted Deposit

In 2025, three-quarters of parents who helped didn’t expect repayment, and over a quarter called it a gift.^_[1]

This is a relatively straightforward approach. Parents provide a cash sum to their child to put towards the deposit, with no expectation that the money will be paid back.

How it works: The parents transfer the funds to the child, who then uses it as part of their home loan deposit. Most lenders will require a statutory declaration from the parents confirming the money is a non-refundable gift.
Example Scenario: Sarah wants to buy a $600,000 apartment. She has saved $30,000 (a 5% deposit). Her parents gift her an additional $90,000, bringing her total deposit to $120,000 (20%). This allows Sarah to avoid paying Lenders Mortgage Insurance (LMI).

2. The Formal Loan

The average deposit gift was approximately $74,040 in 2025 (up from ~$69,907 in 2021). If the money isn’t a gift, it must be formalised as a loan with clear, written terms.^_[1]

In this arrangement, parents lend their child the money for the deposit, with a formal agreement that it will be repaid over time, with or without interest.

How it works: A formal loan agreement should be drafted by a solicitor. This document outlines the loan amount, repayment schedule, interest rate (if any), and what happens if repayments are missed. Lenders will view this loan as a liability and factor the repayments into their assessment of the child’s borrowing capacity.
Example Scenario: Tom wants to buy a $700,000 house and needs a $140,000 deposit. He has saved $70,000. His parents lend him the remaining $70,000. Their solicitor drafts an agreement for Tom to repay his parents $500 a month over 12 years. This will be considered by Tom’s lender as an expense that will likely reduce his borrowing capacity.

HOW MUCH CAN I BORROW?

3. Acting as a Guarantor

Parental guarantor arrangements fell to 8% in 2025 from 15% in 2021, reflecting growing risk awareness.^_[1]

Instead of providing cash, parents can use the equity in their own home as additional security for their child’s loan.

How it works: The parents offer a portion of their home’s equity to secure part of their child’s loan. This allows the child to borrow up to a significant percentage of the purchase price (e.g. 95%) and avoid paying LMI. The guarantee is typically limited to around 20% of the property value. Once the child has paid down a certain amount of their loan or their property has increased in value, the guarantee can be removed, releasing the parents’ property.
Example Scenario: Emily wants to buy a $500,000 property but has only a small deposit. Her parents, who own their home, agree to act as guarantors. They use the equity in their property to provide a guarantee for $100,000 (20% of the purchase price). This allows Emily to get a loan for the full purchase price without paying LMI.

Pros, Cons, and Key Risks

While parental help can be a blessing, it’s vital to weigh the benefits against the potential risks for everyone involved.

Pros for the First Home Buyer:

Get into the market sooner: Reduces the time needed to save a deposit.
Avoid LMI: A larger deposit (or a guarantee) can help you avoid costly Lenders Mortgage Insurance.
Increased borrowing power: A larger deposit may improve your borrowing capacity with some lenders.

Cons and Risks:

Financial Strain on Parents: Providing a large sum of money or guaranteeing a loan can impact parents’ retirement plans or their own financial flexibility.
Risk to the Parents’ Home (Guarantor): If the child defaults on the loan, the lender can call on the guarantor to cover the debt. In a worst-case scenario, this could mean the parents have to sell their own home.
Relationship Strain: Mixing money and family can be complicated. Disagreements over repayments or expectations can cause tension.
Impact on Child’s Borrowing Capacity (Loan): A formal loan from parents is a debt that will reduce the amount a lender is willing to offer for the mortgage.
Centrelink Implications: Gifting large sums of money can sometimes affect parents’ eligibility for the Age Pension under “gifting rules.”

How Parents Fund the Support

Understanding where the money comes from can help frame conversations around risk and expectations.

According to Mozo’s 2025 report, parents are funding this support by:

Using their savings (54%)
Using their income (29%)
Cutting back on their own expenses (19%)
Smaller shares use home equity, superannuation, or sell assets.

A Quick ‘Risk’ Checklist for Parents:

Before committing, consider creating clear boundaries:

Maximum Amount: What is the absolute limit you can comfortably provide without impacting your own financial security?
Time Limit: If offering free rent, for how long? If guaranteeing a loan, what is the target date to be released?
Exit Triggers: What events (e.g., reaching 20% equity) will end the arrangement?
Independent Advice: Have you spoken to your own financial adviser or solicitor?

Safeguards Checklist: What to Do Before You Commit

To protect both parents and children, it is crucial to put safeguards in place.

Seek Independent Advice: Both parents and the child should seek independent legal and financial advice before making any agreements.
Document Everything: No matter how close your family is, get everything in writing. A solicitor can draft a formal loan agreement or a Deed of Family Arrangement.
Discuss the “What Ifs”: Talk openly about worst-case scenarios. What happens if the child loses their job? What if the child’s relationship breaks down? What happens if the parents need their money back unexpectedly?
Limit the Guarantee: If acting as a guarantor, ensure the guarantee is for a fixed, limited amount (e.g., 20% of the purchase price), not the entire loan.
Have an Exit Strategy: Plan for how and when the parental support will end. For a guarantor loan, this means aiming to release the guarantee as soon as the loan-to-value ratio reaches an acceptable level (usually 80%).

Are There Alternatives to the Bank of Mum and Dad?

Yes. Before turning to family, it’s worth exploring other avenues of support designed for first home buyers.

Government’s 5% Deposit Scheme: This federal scheme allows eligible first home buyers to purchase a home with as little as a 5% deposit and avoid paying LMI.
First Home Super Saver (FHSS) Scheme: This allows you to make voluntary contributions to your superannuation fund to save for your first home, offering a tax-effective way to boost your deposit.
State-Based Grants and Concessions: Most states and territories offer First Home Owner Grants (FHOG) for new builds and/or stamp duty concessions, which can significantly reduce upfront costs.

A trusted mortgage broker can help you understand if you are eligible for these schemes, which can sometimes remove the need for parental assistance altogether.

Frequently Asked Questions (FAQs)

1. How much can my parents gift me without it affecting their pension?
Under Centrelink’s current gifting rules, a single person or a couple combined can gift up to $10,000 in one financial year or $30,000 over five financial years without it affecting their assets test for the Age Pension. Amounts over this may be treated as a “deprived asset.” It is essential for parents to seek financial advice on this.

2. If my parents gift me money, does it need to be in my bank account for a certain time?
Some lenders have a “genuine savings” policy and may want to see that you have saved at least some of the deposit yourself over a period of three to six months. However, many lenders are flexible with gifted deposits, provided there is a signed declaration confirming it’s a non-refundable gift.

3. What happens if my partner and I split up and my parents provided the deposit?
This is a major risk. Without a formal agreement (like a loan agreement or Binding Financial Agreement), gifted money may be treated as a joint asset of the relationship and split accordingly by the Family Court. This is why legal advice is so important.

4. Can my parents act as a guarantor if they still have a mortgage?
Yes, it is possible, as long as they have sufficient equity in their property. The lender will assess their overall financial position to determine if they can support the guarantee.

5. Do my parents need to use the same lender as me for a guarantor loan?
It depends on the lender, but many lenders prefer that the guarantor and the borrower’s loans must be with the same financial institution.

6. As a guarantor, am I responsible for the whole loan?
You are responsible for the portion you guarantee. However, it’s critical to read the loan contract carefully. Some guarantees can be for the entire loan amount, which is why a limited guarantee is the safest approach.

7. Can the Bank of Mum and Dad help if I’m self-employed?
Yes, the principles are the same. However, as a self-employed applicant, your income verification process will be more detailed, and parental support can help strengthen your application by providing a larger deposit.

8. Is a verbal loan agreement with my parents good enough?
No. Verbal agreements are notoriously difficult to enforce and can lead to misunderstandings. Lenders will generally need to see a written agreement.

Your Path Forward

The Bank of Mum and Dad can be a resource that bridges the gap to home ownership. However, it requires open communication, careful planning, and professional advice to ensure the arrangement is safe and sustainable for the whole family.

A conversation with a trusted Yellow Brick Road mortgage broker is a great first step. We can help you explore all your options from government schemes to family assistance, to find the right path for you.

At Yellow Brick Road, we’re here to help you navigate your journey with confidence.

[1] https://mozo.com.au/reports/bank-of-mum-and-dad-report-2025#download-the-pdf-version – “Mozo Report, 2025