Median housing prices in Australia soared to dizzying heights in 2015, making for an incredibly fierce and difficult market to enter into for first-time property buyers.
Although data shows that home ownership rates in Australia are among the highest in the world and over 70 per cent of the population aspire to own their own home, the challenging market means that one third of Aussies still haven’t been able to get onto the property ladder.
In fact, the rate of home ownership in people aged 25-34 has seen the highest decline, down 21.5 per cent between 1982 and 2011.
Unsurprisingly, affordability is the largest contributing factor causing the decrease in home ownership among young Australians.
A as a result, those looking to buy a property are having to undergo a two-step process – in order to create enough wealth to purchase a home in a chosen location it has become common for people to built a property investment portfolio first.
“Regardless of whether home ownership or property investment is first on their list, young Australians are turning to their parents for guidance and financial support,” said Zaki Ameer, real estate expert and founder of Dream Design Property (DDP).
“Many of these parents are willing to help where possible, they are just unsure as to how.”
Here are Ameer’s top five tips for parents to help their kids break into the property market.
1. Use the equity in your own home as a deposit
Parents who own property already can release accrued equity by borrowing against it, using this money as a deposit for their children.
A substantial deposit will significantly lessen the amount of money their kids will need to borrow and as a result decrease the amount of interest paid over the life of their loan.
2. Buy the property yourself
If your child has not been able to save enough money for a deposit you can purchase the property in your name and have your child rent it from you at half the market rate.
This will allow them to steadily save with the intention of purchasing the property in the future but because you won’t be receiving the full rental income you’re entitled to, you will need to ensure you are financially stable to manage this until your child can purchase the property.
Working out a realistic timeline for your child to save is crucial in this instance.
3. Invest and co-own the property
If you’re in a situation where you are able to make a greater financial commitment, you can sign as a joint borrower on the loan and own half the property.
The downside is that if your child fails to meet their repayments you will be left with full financial responsibility.
4. Act as a guarantor on a mortgage
If you’re not able to able provide your child with a lump sum of money but you are the owner of your home or property, you can use the equity to be a guarantor to help your child qualify for a home loan.
This option needs to be well thought through however, because if your child is not able to repay the debt your home might be put at risk.
5. Give good advice and support
Before you decide to provide any financial support toward your child’s property investment it’s a good idea to thoroughly educate them on sensible money habits, as well as how to budget and plan, which doesn’t come naturally to everyone.
To ensure your child fully understands what is involved in purchasing a property it’s important to explain all of the basics involved and terminology used that may be unfamiliar to most first home buyers.