Sep 21, 2016 10:18:15 AM

Would You Buy a Home For Your Kids or Grandkids?

Topics: Selling, Home Loans 0

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When Malcolm Turnbull announced earlier this month that Australians would need to “shell out” to help its youngsters buy property, he wasn’t far wrong. While his remarks may have sparked some criticism, the reality for many young Australians is that they’ll need to rely on the bank of mum and dad in order to get a foot onto the property ladder. Would you help your children or grandchildren buy a home?

Intergenerational issues

In an interview earlier this month, outgoing head of the Reserve Bank, Glenn Stevens, said the high cost of housing has led to “intergenerational issues", leaving many younger Australians needing help from mum and dad to buy into the expensive Sydney market.

Mr Stevens said that while it has always been hard to get into the housing market, factors like zoning, transport, infrastructure and changed preferences of where people want to live were making it even harder today.

"I think that a lot of people of my generation are actually going to find themselves, if they haven't already, helping their children into the housing market because that may be almost the only way that their children can enter the Sydney market," Mr Stevens said.

"That, of course, means that for people of my age, that the wealth we think we have in our house, actually, we don't have quite as much as we thought because we're going to have to give some of it to the next generation."

A helping hand

Earlier this month, the spring auction season kicked off with a noticeable presence from the baby boom brigade. Parents and grandparents were out in full force looking to help their children and grandchildren fund the purchase of their own first homes.

Record low interest rates and astronomically high house prices, particularly in desirable parts of Sydney and Melbourne, means first home buyers are having to come up with a six figure deposit in some cases. Without mum and dad’s help, many first home buyers would simply not have a chance.

Local real estate agents say mum and dad bidders are the norm in Sydney’s eastern suburbs, more so following the rapid price growth over the last three or four years, as even entry level properties are now out of reach for many first home buyers.

For parents and grandparents, the benefits of having children and grandchildren in close proximity outweigh the cost. Many claim they want to give their children a good start in life, and the reality is without this help young Australians are destined for life-long renting.

Lenders have jumped on the trend too, offering innovative finance packages aimed at parents and grandparents who can’t guarantee the full loan but are prepared to finance a portion of the loan.

Family pledge loans let parents give a limited guarantee for an amount needed as the deposit or part of the deposit, that allows the borrower to pay it off as part of the loan while avoiding mortgage insurance. Having a relative guarantee this extra sum of money can make a huge difference to many first home buyers.

Helping your children

A family pledge loan could be the start that your children or grandchildren need to get into their first home. If you think you’d like to help your children or grandchildren buy their first home but you’re not sure where to start, get in touch with a Mortgage Express broker today to discuss your finance options.