Generation Y is turning to the bank of mum and dad to help get a leg up on the property ladder as property prices stabilise and investor enquiries reduce. Property data group CoreLogic reports, prior to the onset of the coronavirus crisis, first-home buyer participation as a portion of owner-occupiers was at its highest level since January 2012.
That data is matched by a 40 per cent year-on-year leap in first-home buyer enquiries nationally on realestate.com.au in April. Over the same period investor enquiries have fallen by 20 per cent.
Realestate.com.au chief economist Nerida Conisbee says “First-home buyers are well and truly in the market and are more buoyant than you might expect.”
“It is a slower market and they like to transact in a market like that. First-home buyers tend to be really cautious, they like to take their time and know that they are doing something right,” she says.
“Investors are not very active in the market right now. First-home buyers and investors usually target similar homes so the absence of investors is a good sign for those looking to make their first home purchase.”
Historically low interest rates should also drive demand from first-home buyers.
BCP Finance director Brett Hartwig says parents are playing an increasingly important role in realising the great Australian dreams of their children.
“We are seeing parents play the ‘bank of mum and dad’ role now, more so than ever,” he says. It’s a sign of the times, property prices are still going up and wages aren’t keeping up.”
But he warns it is important for first-home buyers to do their own homework before turning to their parents for help.
“Buying your first home is a challenging step, now more than ever for young people,” Mr Hartwig says. “They need to prepare for this next phase in their lives.
“Understanding the property market, studying the area they wish to purchase and recognising the financial commitment they are about to enter is incredibly important.”
Mr Hartwig says parental help can come in a number of forms:
→ Monetary gift
→ Borrowing extra funds against their own home loan
→ Gifting their own home equity
→ Joint venture
→ Loan allocation – a portion for mum and dad and a portion for the first-home buyer
→ Loan guarantee
“Gifting a lump sum of money is probably the most common form of help,” Mr Hartwig says. “It eliminates lender’s mortgage insurance (LMI), which can be quite a lot of money.”
The LMI levied on a $600,000 loan with a $30,000 deposit is more than $25,000.
Another popular option mums and dads consider is a joint venture.