May 16, 2018 2min read
More first home buyers are turning to their parents for help as they struggle to pull together a deposit for their first home.
Some 55 per cent of first home buyers in Australia receive help from “the Bank of Mum and Dad”, according to the latest data from Digital Finance Analytics. In fact, two-thirds of these first home buyers receive an average amount of $88,450 from their parents as a deposit, according to the DFA data.
In fact, for most first home buyers, the main barrier for entering the property market is pulling together a deposit, says Nerida Conisbee, chief economist at realestate.com.au. “Once they get the deposit, paying off the loan is usually something quite straightforward for them,” she says.
“The biggest challenge is that prices have gone up so much in many markets, particularly in Sydney and Melbourne.”
With a median house price of $760,000 in Melbourne, a 10 per cent deposit equates to $76,000. However, if borrowers want to avoid the additional cost of mortgage insurance, which can add up to the tens of thousands of dollars, they generally need a deposit of 20 per cent, which would amount to $152,000 for a median-priced house in Melbourne. Even for units, where the median price in Melbourne is $551,000, a 20 per cent deposit amounts to over $110,000.
According to recent data from Bankwest, first home-buyer couples in Melbourne will need an average of 6.4 years to save the deposit for a median priced house, which is eight months longer than in 2016.
Conisbee says more first home buyers are entering the market in Victoria thanks to a number of factors: help from their parents, a slight slowing in the market, and generous first home owner’s grants and concessions introduced last year. In fact, 3162 buyers in Victoria entered the market for the first time in August 2017 – the highest number since December 2009. While assistance with the deposit is a huge help, banks will still need to be confident that the potential home buyer has the income and financial responsibility to repay the loan.
“What banks need to see when they lend to people is a history of saving,” says Conisbee. “If you don’t have that history of saving, you are considered higher risk than someone who’s managed to save the deposit themselves.”
It means that potential borrowers should also be spending responsibly and putting money away themselves as they prepare to buy a house; not just expecting their parents to give them the entire deposit.
Originially published by realestate.com.au