Commonwealth Bank is encouraging struggling first home buyers to borrow 100 per cent of the value of a property using their parents' home as security, describing the highly risky strategy as a "great option".
In an online chat with a CommBank sales agent, economist and housing market bear Lindsay David, posing as a first homebuyer, asked whether he could borrow $800,000 to buy an $800,000 house.
"I haven't really saved before but my parents said they would provide a parental guarantee by using equity in their home," he wrote. "Do you provide loans like this?"
The CommBank agent replied, "Yes, we definitely lend using guarantors, this is a great option. It's difficult to save a deposit with the price of houses in Sydney isn't it! :)"
The LF Economics founder, who described the undercover chat as "cheeky", said all the banks did the same thing but singled out CommBank and Westpac as the "cowboys". He provided a similar chat log involving a Westpac sales agent.
"The reality is it's possible in Sydney to eat your smashed avo and still get into the housing market because you don't need to save," he said.
"When people wonder why there are so many first home buyers out there who can afford to buy a property in Sydney, look no further. People are just using equity instead of cash. No one appears to have the cash to buy these places, they're using equity because everyone's house prices keep going up."
On Wednesday, official data showed the share of housing loans issued to first home buyers hit a five-year high, rising to 18 per cent in November 2017, following stamp duty discounts in NSW and Victoria introduced in July.
Mr David said the housing market "keeps on using the unrealised capital gains of existing homes to leverage against buying another property". "I'll leave that to people's opinion on whether they think that's Ponzi-like or not," he said.
It comes amid growing warning signs for Australia's housing market, with the country's household debt-to-income ratio hitting 200 per cent for the first time after the Australian Bureau of Statistics revised its official figures.
The change, which required the accurate measurement of property investment by self-managed superannuation funds, brought the figure up from 194 per cent, The Australian reported. Total household debt now sits at nearly $2.5 trillion.
Mr David said the worst-case scenario would be losing two houses instead of one if the borrower found themselves unable to meet repayments, either through rising interest rates or the sudden loss of a job.
"Not only are they going to lose their house, they're at risk of losing their parents' house as well," he said. "Most parents in that age group, especially in Sydney, they're asset rich but cash poor.
"If they use $200,000 equity in their own home and the kid can't pay, the bank comes knocking asking for $200,000, do they have that? They may have to sell their house too. That's the risk. You may have two houses on the market instead of one.
"You'd love to be a fly on the wall for that Christmas dinner."
The rising share of first homebuyer loans coincided with a sharp drop-off in investor lending amid a crackdown by financial regulators, which contributed to a housing correction starting in the second half of 2017, with national dwelling values slowing in October before turning negative in December.
Mr David said the question was whether the first homebuyer stimulus was "enough to keep things churning". "This is a housing market built on stimulus, it's clearly not built on fundamentals," he said.
"Sydney is one of the most expensive housing markets in the world and still hands down one of the easiest places in the world to get a loan to buy a house. You'd probably say a lot of the loans being issued today are not going to be repaid."
A CommBank spokesman said, "In line with our responsible lending standards, we only provide loans to customers who meet our stringent lending criteria and who are able to service the loan on an ongoing basis.
"While guarantors can help with a deposit, all customers who apply for a guarantor loan are assessed against these high standards, and are able to afford their repayments. Customers with a guarantor loan are less likely than average customers to default on their repayments."
A Westpac spokeswoman said, "Westpac allows parents to contribute equity to help their children into home ownership and we're committed to supporting families through this process and do this through our Parental Guarantee policy. We also encourage guarantors to seek independent legal advice before entering into these agreements."
ANZ and NAB have been contacted for comment.