In his Switzer column, John McGrath discusses why increasing numbers of parents are getting involved in the real estate affairs of their children.
Here’s what he had to say:
Over the past few years we’ve seen the continuous rise of the bank of mum and dad.
Young buyers unable to save a deposit quickly enough, or get approval on a loan big enough, are increasingly turning to mum and dad for financial help in the form of a family guarantee or a cash loan to give them a leg-up in the market.
Some parents are buying jointly with their kids, the idea being to give their kids a place to live while also investing for future capital growth.
This is a particularly prevalent trend in University areas of Sydney such as Surry Hills, Redfern and Chippendale (close to UTS) and Camperdown (close to Sydney University), for example.
The National Australia Bank has just released some numbers showing the proportion of first home buyers purchasing with a family guarantee has gone from 4.8% in 2010 to 6.7% today.
First home buying has tapered off in many areas now that government grants only support the purchase of new or off-the-plan dwellings.
There’s a limit to the number of new projects in any one area – especially regional towns, so choices can be limited for young buyers relying on government assistance.
That’s why it’s great that many young buyers have taken a different course in markets like Sydney, which have become very expensive in the most desirable inner city areas.
Instead of lamenting that they can’t afford to buy where they want to live, young buyers are renting and living in their favoured location and buying a more affordable investment property in the typical first home buyer areas.
With interest rates so low right now, it’s possible even in Sydney, for ‘rentvestors’ to find a good quality property in an affordable area where the rent will cover all – or at least most, of the mortgage repayments from day one.
That’s smart people evolving as the market evolves itself.
For those young buyers who really want to own and live in their own place, I can’t stress enough that now is the time
Forget about market cycles, government grants and so forth.
Rock bottom interest rates are the key facilitator for buying in right now.
According to Oxygen Home Loans, the best deal out there is 3.99% fixed for three years.
Can I just say that again – 3.99%.
Of course, rates will go back up again at some point, but in terms of being able to get into the market, today’s rates make it that much easier.
Of course, getting the deposit together can be a major challenge in expensive markets – no doubt.
But if you can find a way to scrape it together – perhaps with mum and dad’s help, and fix at 3.99% for the first few years, you are off to a cracking start in real estate.
You’re in an even better position to buy if you live in pretty much any other market outside Sydney!
Sydney is really the only market in a boom right now.
If you’re anywhere else, this is really the time to sit down and think about the opportunity today’s rates puts in front of you.
Don’t miss the boat and look back in a few years’ time and wish you’d paid attention.
According to NAB’s stats, 73% of customers using the family guarantee product are aged 20-29 and 21% are aged 30-39.
I’m most impressed with the 3% who are in their teens.
Hats off to them for getting started on the path to wealth creation early – many of us in retrospect wish we had been that savvy.