» Housing Affordability

Home affordability – five ways Mum and Dad can help their children

Chan Naylor Team — Thu, 30 Mar 2017 23:01:35 +0000

Home affordability is the current talk of the town. How can we assist first home buyers to enter the Property Market? The “Bank of Mum and Dad” has often been referred to as a means for first home buyers to enter the market, but how can parents practically do this? There are many things parents must take into account before they would undertake such assistance, things like can my child manage his or her money? Or have they a track record in saving and budgeting? Have they a stable job? What are the implications if they have a bad relationship or divorce? It is not a straightforward decision for parents to make. Here are five strategies that Mum and Dad could consider to assist their children. Strategy one- lend the money With housing prices, so high the most difficult challenge for a first home buyer is to raise the 10-20 per cent deposit plus costs to buy their first home. If Mum and Dad are lucky enough to have some spare cash they could lend that to their children on a commercial basis, alternatively parents may have built equity in their own home and this equity is sitting in the property and not being used. They could approach the bank and unlock this equity by establishing a line of credit facility secured against the home. They could then access these funds and on-lend the deposit for the first home to their children the amount of interest you change your children could be the equivalent you are paying to the bank and the terms and conditions of this loan is totally dependent on you. In both circumstances, there should be a formal loan agreement drawn up between the parents and child and registered with the appropriate authorities and we would always recommend that a lawyer is engaged to assist. Strategy two – provide guarantees Mum and Dad may have a property or assets with a bank, they can offer these securities or guarantees to the bank limited to the amount of the deposit of the child’s new property, then the bank would lend the child the money for the property. The parents would have to provide Personal guarantees and perhaps these could be limited to the deposit. This strategy is risky in that if the child defaults on the loan the bank will come knocking on the parent’s door looking for recompense, so use this strategy only for the right type of child and use a lawyer to assist with the appropriate agreements. Strategy three -joint venture Mum and Dad may be looking to invest in property and may decide to enter into a joint venture arrangement with their child whereas the parents put up the cash for a percentage of the property and allow the child to use the property as security for them to buy their own share. The acquisition could be done as tenants in common setting out the percentage of ownership. If the child wants to acquire further interest in the property, there would be stamp duty and potential capital gain tax issues. Once again there should be documentation put in place to clearly set out agreements. If the child is living in the property appropriate rental agreements should be put in place or even consider using an agent to ensure this is managed at arm’s length. Strategy four – encourage children to move interstate Many property commentators have been arguing the fact that housing is only unaffordable in the capital city of Sydney and to a lesser extent Melbourne and if the younger generation migrated interstate to more affordable areas like Perth, Brisbane, Adelaide and the Gold Coast the prices are more affordable. Most parents want to be within reach of their children for obvious reasons, however the reality is that if they cannot afford to live in Sydney and Melbourne perhaps they should look at other states and if parents encourage that move by moral and or financial support. The strategy could be that the whole family, parents and children pack up and move interstate to be closer together and this may also help to resolve Mum and Dads retirement plans. Strategy five – earlier education is better In my view this is the most important strategy, it is not impossible to save money. Unemployment is low and the average Australian salary is quite good, however sacrifices need to be made. If Mum and Dad start teaching their children about money management early in their life this will help them manage their money and build the deposit for their first home. A lot is to do with education and mindset so encourage your children to attend seminars on money management and property, pay for their tickets and attend with them for support. In Sydney, you will need a reasonable job and to save at least $150,000 to allow you to enter the market. Four or five years of sacrifice, perhaps two jobs and tight budgeting should get the average Australian a deposit. I know of young people aged late teens who are working hard with numerous jobs and saving $30,000 per annum, so the earlier they start the better. Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer. Article provided by www.chan-naylor.com.au/ originally published online at www.chan-naylor.com.au/housing-affordability-5-ways-mum-dad-can-help-children-by-david-naylor/

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Will your children be able to own property in Australia?

Chan Naylor Team — Fri, 06 Nov 2015 05:37:44 +0000

Last month I wrote an article about how Sydney is fast becoming like the property markets in New York and London and also how the younger generation are feeling disenfranchised due to out of reach affordability of property ownership. Read David Naylor’s previous article: London, New York, Sydney? I have recently returned from a trip to the UK and while there, undertook some research on how cities like London and the younger generation are dealing with affordability of property ownership, what strategies are being implemented and then looked at how these strategies could apply back here with young Australians. The concept that has become popular in the UK is the “share the pain” principle. As property prices rise the option of shared ownership is gathering momentum. The bottom rung of the housing ladder is being pulled further out of reach with data showing how few potential first home buyers’ earn enough to get the mortgage they need on a typical first home in high price areas. This is not unlike markets in Sydney and Melbourne where the gap is sometimes even greater. Unless young people have access to the bank of ‘Mum and Dad’, than shared ownership may be the only option. The young generation point to the now or never syndrome… before even a ‘share’ of a home becomes unaffordable. In the UK they have organisations called Housing Associations. These are private non-profit groups which offer properties for shared ownership. I am not yet aware of any such organisations in Australia but don’t be surprised if something similar doesn’t start to emerge in this country soon. There are advantages and disadvantages with the UK model, but what the research did highlight is the fact that there is a growing need for shared ownership strategies among the younger generation to allow an entry point. With shared ownership you have to pass an income eligibility test with the banks before you can then get a mortgage of between 25 and 75 per cent. You pay rent on the part of the home you do own and you can increase the mortgage to take out larger slices based on the increase in property value until you own the home outright. This is called ‘Staircasing’. Until organisations like those in the UK appear in this country, one option for young people could be a joining of family members or close friends to pool deposits and use combined incomes to access finance. A slightly more complex idea could be that they enter into a joint venture where the rules are clearly defined and the property is held jointly via a partnership or trust structure. This would give them access to property ownership which is an obvious advantage. The disadvantages with a model like this is, that what happens if circumstances change, how flexible is the structure to allow changes in personal situations and at what cost? This will all be governed by the Joint Venture Agreement. With any change of percentage of ownership of property you would then also need to consider the cost of Stamp Duty and Capital Gains Tax, however if structured correctly and the appropriate agreements are in place then this can be managed to some extent. When a property seems financially out of reach, a joining of two or more people’s resources may potentially allow them leverage to enter the market together, at a younger age. There has to be, and there is hope for our younger generation with regard to property ownership. The old fashion principles still apply, work hard, budget, save hard and then perhaps to get entry into the market they may just have to think outside the square and consider non-traditional methods of property ownership. For further information about how Chan & Naylor can help assist you visit www.chan-naylor.com.au or phone 1300 250 122.

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London, New York, Sydney

Chan Naylor Team — Tue, 29 Sep 2015 07:07:52 +0000

The Sydney property market is fast turning into one that is similar to London and New York both in affordability, demographics and the style of dwellings. It has recently been confirmed that in fact, this is now actually the case. Sydney medium house prices have finally hit the $1 million barrier and with record clearance rates, auctions at over 90 per cent and low interest rates, many say there is still plenty left in the Sydney market. Sydney’s median is now higher than average house prices in London and is fast approaching that of New York, the ‘Domain House Price Report’, released recently says. The median house price has increased by almost $200,000 or 22.9 per cent in a year, which is one of the highest annual growth rates ever recorded by the city, even exceeding the boom time results of 2001 and 2002. Besides the changes in housing growth, it is also the style of living that is changing. Just like the major centres of London and New York, apartment living is becoming the preferred option. After a lost decade with little housing investment, Sydney is leading the country’s biggest housing construction boom. Densely populated neighbourhoods near the CBD are at the epicentre of Sydney’s housing boom with one in five of all new homes in the metropolitan area being built within the City of Sydney. New State Government figures reveal that over three times more homes were completed within the City of Sydney’s boundaries during the first seven months of this financial year than in any of the forty one other Sydney councils. The City of Sydney, which covers just twenty six square kilometres, is adding new homes at the rate of 100 per week. The figures underscore the growing dominance of multi-unit housing in the Sydney property market. In the first seven months of 2014-15 more than two thirds of all dwelling approvals in greater Sydney were for multi-unit developments. Sydney’s apartment boom is also spreading across the metropolitan area, with suburbs also doing some heavy lifting when it comes to new approvals. The quadrupling of new apartment approvals in the outer-ring northern districts this financial year showed the boom was spreading to suburbs with the transport links to support it. The negatives of such high growth is the frustration that young people and those still to get a foot-hold in the market feel especially in Sydney, in trying to achieve property ownership. To most of these people, property ownership appears both unaffordable and well out of reach, similar to both the London and New York markets, which now means that renting becomes the next best option. With the latest boom in Sydney we are seeing the ripple effect coming into play, which basically means the younger generation either accept the “rent” apartment style of living closer to the inner ring, or ownership by moving further out to areas that are more affordable and have good transport links. The ripple effect is the phenomenon that occurs when prices become unaffordable in a particular area and overflows to the next suburb so on and so on. Sydney’s suburbs outside the inner rings are now experiencing record growth rates. I have been a long term property investor in Sydney and it may be boom times at present but like previous cycles it will not last forever and just like the mining boom we have just seen, the bubble will eventually burst. It’s now all about when. For further information about how Chan & Naylor can help assist you visit www.chan-naylor.com.au or phone 1300 250 122.

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Statistics say it’s now easier to own an investment property

Bradley Beer — Fri, 06 Sep 2013 01:29:54 +0000

During Money Smart Week every investment property owner wants to hear good news about the proportion of their income that will be required to meet loan repayments. The latest Adelaide Bank and REIA Housing Affordability report shows that housing affordability has improved over the past two years, with the proportion of income required to meet repayments at 28.7%. This is the lowest recorded drop since the June quarter of 2003. This is in part due to the low interest rates set by the Reserve Bank of Australia, which remained unchanged this week at a historical low of 2.5%. Variable interest rates have also declined 0.2 percentage points from 6.1% to 5.9% in the June quarter, which is a decrease of 0.7 percentage points compared with the same time last year. While we’re on the subject of how much money is required to meet loan repayments, if you’re considering purchasing a new investment property – why not also make a smarter investment choice by requesting a tax depreciation schedule for your property? Claiming depreciation can make a significant difference to the available cash flow. The money claimed can also assist you with loan repayments. Make sure you crunch the numbers and get an estimate of how much depreciation deductions you can claim. Read more: Crunch the numbers and save

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