How parents could help their kids to buy their first property

The median price of property has been rising so quickly in Sydney and Melbourne that many young adults worry they will never be home owners.

The housing affordability issue isn't just about home prices. There are social and generational factors because today's young adults are less likely to be savers.

So even as home-loan interest rates are at their lowest in more than 50 years, affordability is as much about a lack of a deposit as an inability to service repayments.

Luckily, there are options for borrowers who have decent incomes and low deposits, and it's even easier if you have supportive parents.

Recent research of more than 6000 people by Yellow Brick Road showed that many parents want to help their children to buy property. If that is something you hope to do for your kids, these are the options.

First, most lenders will consider a family guarantee in lieu of a saved deposit. If you're buying a $500,000 property, need $100,000 deposit and your parents have built substantial equity in their own  property, they can offer it as security for the deposit.

A family guarantee works when the deposit is as least 20 per cent of the purchase price. The lender accepts this security as the deposit, but the borrower is responsible for the mortgage repayments. If the borrower defaults, the lender recovers costs by selling the property, and they can take any shortfall from the security offered by the parents.

While this form of deposit-financing has increased by about 30 per cent in the past five years, many home owners don't want to risk losing their property wealth if their son or daughter fails to make mortgage repayments.

This leads to another option: the non-refundable gift. If a parent wants to help their child buy their first home, while keeping their own property high and dry, they can give a sum of money to the borrower and sign a statutory declaration that the money is a gift.

Lenders, generally speaking, don't allow these deposit gifts to exceed 50 per cent of the deposit. The other half must be savings of six months or more, so the non-refundable gift is a good way for first home buyers to double their deposit, and the parents can help without putting their own retirement plans in jeopardy.

Be aware that the ability to save a deposit counts for a lot with lenders, and where a borrower has low or no savings, the lender will scrutinise their income and their serviceability.

This situation can be looked at from another perspective: that instilling good financial habits at a formative age is a good investment. The combination of high income and low savings is no way to build financial security. The key is to save some of your income, so you can turn it into hard assets. This is something worth teaching children, especially given the number of consumer temptations foisted on young people.

If you're a first home buyer who won't get parental help with a deposit, save hard and buy the property you can afford, not the one you want.

by Mark Bouris

Please contact Antony Fung on 0425 470 111 if you have any property related inquiries.

Antony Fung

Ashfield Real Estate

www.ashfield-realestate.com.au

1300 938 931

Tasty House Chinese in Ashfield is truly tasty!!

Tasty House was one of the first places I discovered in Ashfield and quickly became a favourite. They specialise in Vietnamese dishes such as pho and noodle soup but also offer some popular chinese dishes like fried rice, sweet and sour chicken/pork on rice and black bean chicken on rice. My ultimate go-to dish whenever I frequent this restaurant is the grilled pork rib on tomato rice or crispy chicken on tomato rice. It never disappoints.

Service is quick and the drinks/dessert menu is pretty mouth watering too.

Address: 297 Liverpool Road, Ashfield

Phone: (02) 9716 5668

Price range: $10-15 for mains 

Antony Fung

Ashfield Real Estate

www.ashfield-realestate.com.au

1300 938 931

Auction frenzy in Sydney keeps property prices rising

Data shows prices are up 6.4 per cent in Sydney so far this year (2015), compared to 3.9 per cent gains in Melbourne, a 0.1 per cent rise in Brisbane, a 0.2 per cent decline in Adelaide and a 1.6 per cent slide in Perth.

Property analysts, such as Louis Christopher from SQM Research, say that most other data confirms that Sydney is where the main action is taking place.

"At this point in time we think the [Sydney] market's about 25 per cent overvalued and, if our forecasts come in for this year, it'll actually get up to about 40 per cent overvalued. It's probably about the second highest overvaluation point we've ever recorded, the highest being back in 2003 when, on our numbers back then, the market was about 55 per cent overvalued."

Mr Christopher said that, beyond Sydney and some parts of Melbourne, there is generally not much upward momentum in the Australian housing market.

"We don't believe, for example, there's a national housing bubble," he said.

"We can definitely pinpoint areas where the markets have not moved for a very long time and they are undervalued compared to incomes.

"So, even with the cheap credit, it hasn't influenced every market everywhere, because local economic factors have taken a greater hold."

Mr Christopher points to collapsing home prices in most mining towns, falling prices in Darwin and Perth, and relatively stagnant prices over recent years in Brisbane, Adelaide, Canberra and Hobart as evidence.

Antony Fung

Ashfield Real Estate

www.ashfield-realestate.com.au

1300 938 931