While it’s evident there’s quite a bit of adversity first home buyers must face, believe it or not, you’re probably not doomed to a life of perpetual renting or living under your parents’ roof.
Hippies vs hipsters, real life chat vs SnapChat; a lot has changed in the last couple of decades, but there’s one thing we can agree on- and it’s not the definition of LOL (it really doesn’t mean ‘lots of love’) - for millennials it’s going to take more than giving up smashed avo on toast to get into their first home. But thanks anyway, Bernard Salt.
According to the Australian Bureau of Statistics (ABS)1 the mean dwelling price in NSW is approximately $822,100, the highest in the country, with only 3.8 per cent of all home borrowing in August ‘16 going to owner occupied first home buyers2.
These figures are obviously skewed by Sydney’s extremely high dwelling prices, so spare a thought for those moving from regional areas to Sydney for study or a job, or those who can’t live in their family home to save for their own.
While Sydney siders obviously have it tough, this is still relevant for other regions of Australia. Demographia’s annual survey3 released in early 2017 confirms that of the 54 Australian Market’s surveyed, 33 were rated ‘severely unaffordable’.
“Housing affordability in Australia has broadly declined since the early 1980s. The OECD’s price to income ratio index shows a 78% increase between 1980 and 2015.” Dr Matthew Thomas4.
Based on OECD’s figures the housing price to income ratio is almost double what it was in 1980, possibly when you were buying your first home. Take the ever rising costs of living into consideration and you’ll begin to understand why your child is facing the seemingly impossible task of saving a deposit in today’s housing market.
So, what can you do to help if you have loved ones struggling to get into the current housing market?
You’ve most likely heard of a guarantee, but the thought of having your equity tied to your child’s loan for 25-30 years is no doubt unappealing. You may not be familiar with a LIMITED guarantee, which could allow you to guarantee just the portion your child needs for their deposit.
The less equity you’re required to offer, the less risk to you. In this way, a limited guarantee minimises your risk by allowing you to guarantee just a small portion of the total home loan.
This could save your child thousands in Lender’s Mortgage Insurance5 or take years off the time it would take them to save for a full deposit.
Here’s an example of how it can work:
Loan 1 (Guaranteed loan)
Loan 1 is designed to cover the difference between your child’s savings and the deposit required for their property.
Loan 2 (Non-guaranteed loan)
The remaining 80% of the purchase price is held in a separate loan which is secured by the purchased property, as per a standard home loan. While your child is fully responsible for the servicing of both loans, the Non-Guaranteed Loan may be set to interest only payments for an agreed period6, allowing them to focus on repaying Loan 1 (you) as quickly as possible.
You can rest assured knowing the number one priority of our Home Lending Specialists is to minimise your risk and ensure that your future isn’t jeopardised as you help your children build theirs.
The housing market’s pretty tough today, but there are ways you can help your kids get ahead without reaching into your back pocket - enquire today.
1.Australian Bureau of Statistics 2.Money Magazine 3. Demographia’s annual survey 4. Housing affordability in Australia 5. Terms, conditions, fees, charges and normal lending criteria apply Regional Australia Bank reserves the right to determine eligibility for this service 6. Terms and conditions apply.