With property prices rising and increases in the cost of living, many young people find it difficult to get on to the property ladder. According to recent reports, more and more parents are stepping in financially to allow their children to get into home ownership.
Why is home ownership so difficult for young people?
There are a number of factors which put buying a home out of reach for so many young people:
Rising house prices
Rising house prices mean that even small homes and units can be out of the reach of young people and families, especially in cities. In many urban or inner city areas there is a lack of affordable housing, which means that competition and prices are high.
With more people unable to afford to buy in close to cities, many are looking to move to outer suburban areas, which means longer commuting times. This can put strain on families and make home ownership logistically very difficult.
Tighter lending criteria
Since the GFC, many financial and lending institutions have also tightened their lending criteria, which means that it is more difficult than ever to get a mortgage, especially for first time buyers, unless you have a substantial deposit.
Investors dominating the property market
According to figures from mortgage broker AFG, less than 10% of the mortgage applications processed in February this year were for first time buyers. As more investors, both local and overseas, buy property in Australia it drives up the prices and reduces the availability of properties for sale. This makes it harder for first time homebuyers to get a foothold in the market.
Cost of living increases
Australia has gone from being a relatively affordable place to live, to one of the most expensive places in the world, especially in the main cities. These increases in the cost of living make it harder for young people to save for a deposit.
More young people than ever before are choosing to live at home for longer or to return home after university or travelling so they can save money for a home deposit, or enjoy a more comfortable standard of living.
For young people, especially families who may be renting and living on one income, home ownership can seem completely unachievable without some form of extra financial assistance.
Has the rate of parents giving financial assistance increased?
According to lenders, the percentage of first home mortgage applicants who require financial assistance from their parents has increased from less than 10% a decade ago, to as much as 30%. Most of the financial assistance is in the form of a contribution towards the deposit so that children can obtain finance and get started on the property ladder.
How can I help my children get started?
Many baby boomers are faced with the situation of having children who may be starting their own families and thinking about home ownership for the first time. For those with the means to help, providing financial assistance in the form of a loan or gift can make the difference between young people being trapped renting indefinitely, or getting into the property market.
Providing financial assistance to cover part or all of a deposit can help get young people over the line financially and allow them to get started. Other forms of financial assistance can include allowing children to move back home while they save for a deposit, or helping out with rent or mortgage repayments, especially if families are on one income.
As well as financial assistance, parents can offer practical support for their children who may be inexperienced in the property market. Help and advice on finding a property, negotiating price and arranging building inspection reports or strata reports (for strata properties) can help young people navigate through the process successfully and make home ownership a reality.
By Darel McBride
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