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Empower Wealth Blog post by Empower Wealth

Today: Weekend Property — The Bank of Mum and Dad

This time on Channel 9’s Today Show, Bryce and Ben as co hosts of The Property Couch, talk to Peter Stefanovic and Alison Langdon about the “bank of mum and dad”. So… what is this investment strategy and how does it help first home buyers get on the ladder?

And no, it doesn’t necessarily mean parents dip into retirement savings…

 

Peter Stefanovic: Alright, it’s time for your dose of Weekend Property! Cue the music. So adventurous. Now to a shocking consequence of the high cost of housing, it’s being reveal, two-thirds of parents across the country are putting their retirement on hold to help their children get into the property market. Children, housing, that’s where cousing came from. I did one of those things.

Alison Langdon: It’s gonna catch on. We’ve found parents and grandparents are sacrificing luxuries like a new car, to be guarantors on home loans. And for more, we are joined by Bryce Holdaway and Ben Kingsley from The Property Couch podcast. Now Ben, I’m not talking to you in that scarf. So Bryce, the old bank of mum and dad. Is it often the only way Millennials can get a foothold in the property market these days?

Bryce: Yeah, you pointed out the prices are rising, but it’s also very difficult to save for a deposit. So if you want to buy a $600,000 house, they got to come up with a 20% deposit, which is $120,000 before you put in stamp duty and other costs, which is just a monumental task for most people. So if they can borrow it from mum and dad, it means that all they need to worry about it’s whether they can service the loan. Because if mum and dad chip in some equity, they can just borrow the whole amount and get in sooner.

Peter: Ben, I’m a Lions fan so I’m a neutral when it comes to this Grand Final, so I’ll ask the question to you. Are these just financial gifts towards a deposit, would you say?

Ben: Pete, it’s not always just a financial gift. So you can do a cash gift and basically that’s non repayable because if you do a gift, which is going to be paid back then the banks are going to assess that as a loan. But the other way we’re talking about is the guarantee, which is security. So we’re using the equity in the parents property for the 25% that we need and that’s going to avoid lenders mortgage insurance which can be you know thousands if not tens of thousands of dollars that you’re saving your kids as well.

Allison: Now, Bryce, something that we hear about quite often these days is parents and children buying a property together. But are there any dangers to be aware of when entering into such an arrangement?

Bryce: Well the blind spots are really around making sure you’ve got an agreement. Because even though it starts out all cordial and friendly, you can see a lot of people with a lot of relationships break down when it comes over money. So I’d have an agreement in place so that you know it’s expensive to get in and out. You’d want to make sure that everyone’s going into it with at least a medium-term outlook and maybe if you sold within the first 5 years, the other person buying out can maybe have the option to pay the original purchase price. But the other blind spot is for the first home buyer. They might miss out on all of the bonuses and incentives that come from being a first-time buyer because you won’t get those.

Peter: Yeah, bit of trap there. Hey Ben, if you do have some forward-thinking parents, what are some of the things that they can do?

Ben: Some really clever forward-thinking parents, what they do is they think about University and they come and talk to us about buying an investment property now, when their kids are still in primary school or early high school. Thinking that they want to get their kids into that university so they have it as an investment property for the period of time that the kids aren’t at uni. And when their kids turn up to university, they’ve got two or three or four years there, they look after them in terms of housing and then obviously, the kids go on and move on to other things. They turn it back into an investment property.

Allison: You know what, I get parents delaying or even cancelling, you know, a holiday or buying a new car but delaying your retirement or even worse, still dipping into your hard-earned savings, it’s pretty extreme isn’t it?

Bryce: Well, it’s just a reality of the market. I mean if you know, as I said before, just trying to save that deposit is near on impossible even in a softening market. Just to be able to save that size deposit is just a massive challenge. I kind of see it a bit like the Europeans and the Asians you know. Our country’s starting to grow up. We’re starting to get a lot more years in us and those cultures tend to buy as a family and it’s part of the planning. They will help their kids get on the ladder. I see Australians doing the same where it just becomes a part of the norm now given housing affordability. So they can get on the property ladder otherwise they’ll be forever on the rent cycle.

Peter: Righto. Ben, hit us. What’s your prediction today?

Ben: Well I’d love to say the Pies but I’m actually, you know, I think the Eagles have been a better team during the year. I think we’ve been better in the finals. So I don’t know but I’ve got to back my team.

Bryce: Let’s hope we see Collingwood winning the whole game and West Coast win as it hit the siren bar.

Peter: Ben, you sitting on the fence with the Collingwood scarf.

Ben: I know, I know but I’m being honest. I love for us to win but I actually think West Coast might get us just in a tight game.

Allison: Well that’s in. Bryce, you’re a Freo supporter. You can’t go for West Coast!

Bryce: I’m going for West Australia. I’m just going for Western Australia. It’s as good as it gets.

Allison: Jeez, I tell you what. People don’t like the Pies.

Peter: Who are you going for?

Allison: Erm… West Coast.

Peter: You didn’t say that earlier.

Allison: I don’t like either of them. I’m wearing black and white!

Peter: Well you can support the Black Eyed Peas.

Alison: Yeah, that’s who I’m going for.

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