Parental Guidance
Generation Z and Millennials Australia-wide, especially in cities Sydney and Melbourne, fear owning a home may be more a dream than a reality. Many first home buyers find themselves tangled in a web of rising home prices, student loans and other debt, and stringent mortgage requirements.
The median housing value across Australia has surged throughout the COVID-19 pandemic despite disruptions to trade, lockdowns, and job losses. According to Domain, the median house price in Sydney has grown a whopping 24 per cent in the past year to June 2021. The Northern Beaches recorded a new median price of $2.6 million, soaring 38.7 per cent in the past year, making it the most significant growth for any region in Sydney. So, with prices rising by the minute whom better to come to the rescue than good ol' mum and dad!
Runaway housing prices have led the Bank of Mum and Dad to become Australia's ninth-biggest mortgage lender. Though only a solution to growing concerns in particular circumstances, many Sydney parents are opting to help their children enter the housing market with them at their side.
According to the Financial Review, parental contributions to loans and deposits are averaging $89,000, up nearly 20 per cent from March 2020. Be it helping with a deposit, being a guarantor on the mortgage, letting children rent out an investment property, or outright buying a house for their children, more and more parents are realising that without a helping hand, moving out of the family home or owning their own place is a long way away.
For many parents, the thought of children moving further from the city and family home to afford a house is enough to consider offering financial assistance.
Experts suggest the increase in turning to the Bank of Mum and Dad highlights worsening inequality, but when the other option is moving further away from the city and living frugally for years who wouldn’t take a bit of extra help?
Son of a successful hand surgeon and an only child, 20-year-old Alex Scott has always known his family has been somewhat wealthy. Though Alex's parents instilled two ever-important lessons in Alex from a young age; that with money comes responsibility and never flaunt wealth, instead remain humble and respectful. When Alex's parents Chris and Marie, decided to purchase an investment property in Sydney suburb Wentworth Point in early 2021 with the intention of Alex renting it out while he completes his degree in primary education, it was a welcomed surprise. The median rent price for an apartment like Alex's in Wentworth Point is $500 per week.
Navigating the housing market isn't something taught in Australian schools. For younger generations who have heard almost nothing but of rising home prices, it can be an incredibly daunting process to embark on alone, yet another reason why more parents are assisting.
With parents as his landlords, Alex is in no position to joke around and forget just how big of a deal living alone as a 20-year-old is; they simply will not let him.
For Sydney mum, Daniela, buying her son Sam an apartment as a high school graduation gift in 2019 was nothing short of an honour. Unlike Alex and the arrangement with his parents, Daniela and her husband Jeff liquidated stocks they had in Sam's name and used funds left for Sam from grandparents to purchase his apartment. This covered half of the apartment's cost, with the other half loaned to Sam from his parents' pocket. As an excited 19-year-old about to own an apartment, Sam sat down with the family accountant and signed a contract to confirm he would stay repaying the loan with an interest rate when he was 25 years old.
"I imagine he was shaking in his boots having the accountant next to him while he signed a real big boy contract, but he needed to understand that this isn't just a gift; it's a responsibility. And I want that money back at some point!" Daniela said.
Though a remarkable graduation gift and privilege, Daniela explained that her worst fear is having Sam become a "spoiled brat." From a young age, Daniela and Jeff would reward Sam with pocket money for completing household chores and cooking family meals. They taught Sam to save 50 per cent, donate 5 per cent and spend the rest.
"We've always tried to teach Sam how to save and be money smart, so maybe one day he can do the same for his kids," Daniela said.
Although it wasn't just as easy as liquidating some stocks and moving money around, Daniela said that she's always wanted to buy her child a home. Daniela listed four things that made it all possible, putting money in safe stocks as a young adult, only having one child, being an older mum (Daniela is 62 years old and Jeff is 72 years old), and finally… marrying rich! Here’s to hoping we can all be Daniela by 60.
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Don’t be too disappointed if your family isn’t in the financial position to help with your first home, we can only do our best with what’s been given to us. But with Christmas coming up who knows, a wink wink nudge nudge in the parental’s direction can’t hurt, right?