Barefoot Investor Scott Pape issues dire warning about Bank of Mum and Dad mistake

The Barefoot Investor has exposed the downside of first home buyers relying on the Bank of Mum and Dad to purchase a home.

Scott Pape raised the alarm after concerned reader Bindi wrote to him explaining that she and her partner, both in their 20s, were struggling with their mortgage.

“After three years of living with my parents, and two children later, we are finding it difficult,” she wrote.

‘Our mortgage is just under 60 percent of our income, so I don’t know how to get our costs below 60 percent.

‘We both work full-time and our children are in childcare. My husband is an apprentice plumber and I work in government service.

‘He’s trying to make money, but the competition is fierce there. I’m just not sure how we can survive as we only closed our mortgage three months ago so refinancing isn’t really an option.”

Mr Pape responded that he believed the couple had relied on a handout from the Bank of Mum and Dad to secure the deposit for the house.

“Because you wouldn’t have gotten it on your own,” he said.

“In that case, you’re the ‘after’ mugshot of what happens when you give the kids a handout disguised as a helper.”

He wondered if the couple had accepted their parents’ loan without considering whether they could easily afford the mortgage repayments themselves.

“You’re parents now, so it’s time to act like responsible adults,” he wrote.

Research of Finder.com.au shows that around 60 percent of first home buyers in Australia receive some form of parental assistance to purchase their first home.

It also suggested that more than half of children who have borrowed money from their parents are under financial stress.

Only about 28 percent of those who didn’t experience the same stress.

The Barefoot Investor suggested that the young couple call their bank and inform them of their hardship.

He said it could potentially allow them to make interest-only payments for a short period until Bindi’s husband completes his internship.

Until then, he suggested, the couple should be comfortable living well below their means.

“Until then, enjoy the baked beans, do your Christmas shopping on Gumtree and sell what you can to get at least $2,000 Mojo in the pot,” Mr Pape wrote.

“You will get through this, and it will make you stronger and wiser. Promise.’

Many Australians are feeling the pressure as house prices across the country have soared, while interest rates have remained high at an official rate of 4.35 percent.

To comfortably own a median-priced home, Sydneysiders would need to earn a salary of about $238,000 a year, recent estimates show.

Those from Perth, Adelaide and Melbourne would need more than $150,000 a year.

Brisbanenites and Canberrans should earn just over $175,000.

Finder’s data shows that parents are giving their children an average of $33,278 to help them make deposits in the competitive market.

About seven percent of Australian parents then continue to contribute to their children’s mortgages.