We have updated our analysis of assistance first time buyers are getting from their families in a desperate effort to get into the housing market at a time when the entry barriers in terms of price and affordability are as high as ever they have been. In addition, high loan-to-value loans are less available, so first time buyers need a larger deposit, and first owner grants are harder to access. Savings interest rates are also very low.
We released analysis a few months back, which caused quite a stir as it highlighted the inter-generational issues in play. We have now updated the quarterly analysis with data to December 2016.
First, more first time buyers are getting help from parents – up to 54% in the past quarter. This help varies from a loan for a deposit, a cash present, help with transaction expenses, or ongoing assistance with mortgage repayments or other household expenses. Parental guarantees are falling out of favour.
Just under half the assistance is going towards first time buyers in NSW (mainly Greater Sydney), where the affordability issues are most difficult, and home prices the highest. But other states are also, to some extent, also in the game. Ignoring the volume growth, the percentage mix has been relatively stable.
- First, are parents giving away some of their future financial security?
- If it is a loan, is the basis of repayment clear, and documented?
- When a bank assesses a mortgage application do they consider the source of the deposit – receiving a “seagull” lump sum is not the same as demonstrating a history of saving, and the risk profiles down the track are different.
It also raises complex questions around equity between siblings, and a whole raft of questions relating to inter-generational finance.
It is also worth remembering that more first time buyers are going to the investment sector before purchasing their own home for owner occupation, as our first time buyer tracker shows.