Help your child buy their first house without draining your retirement fund

house buying tips

For anyone, buying a first home is a big deal. After months or years of frugal saving, planning, house searching and anxiety-ridden auctions, not much can rival the feeling of finally collecting the keys to your very own place.

And yet, it’s an unfamiliar feeling for so many millennials and Gen Z-ers, as housing prices soar to unattainable territory. From the 1970s into the mid-1990s, real house prices increased by about 2 per cent per year. Since then, it’s more than doubled to approximately 5 per cent a year.

All this is bad news for Aussie parents looking for freedom as they move into retirement. With most people taking nine to 10 years to save the average house deposit, it’s no surprise that according to CoreLogic, 63 per cent of Australians who are still living with their parents say they cannot afford their own home and are unable to move out until they are at least 30 years old.

Plus, with tightening lending criteria meaning lenders are reviewing spending habits more closely before granting loans, prospective home buyers need to be aware of how their spending habits may impact their eligibility for a home loan.

Anything from food deliveries, to entertainment, one-off splurges or the use of buy now, pay later services are being scrutinised in a bid to determine future living expenses.

Recently, it was found that using services like AfterPay can impact your chances of getting a loan. Experts suggest that the use of services which allow consumers to buy now, pay later raise questions about whether loan applicants are living beyond their means. Additionally, they are viewed as an open (and maxed out) line of credit and thus reduce lending capacity.

With home ownership out of reach for so many young Aussies, the government has launched several schemes to help them get on the property ladder.

However, these schemes can be confusing and knowing which one will work best for you kids is a hard question to answer, especially with the addition of some states and territories who offer their own concessions for first home buyers.

First Home Owner Grant

The First Home Owner Grant was intended to help offset the effect of GST for home buyers. The scheme is national, but funded and administered under the legislation of each state and territory.

Under the scheme, eligible first home buyers can apply for a one-off grant when building or buying a new residential property to live in. The amount varies state-by-by-state and can depend on the type of property and whether you are buying in a metro or rural area, but start from $7,000 and range towards the $25,000 mark. Unlike many other first home buyers schemes, the grant is not means-tested. Restrictions on the price of the property will depend on your state.

First Home Buyers’ Deposit Scheme

The First Home Loan Deposit Scheme brings down the deposit from 20 per cent to as low as 5 per cent for eligible first home buyers, as the government basically guarantees the remaining part of the loan so that buyers can avoid lenders mortgage insurance. However, the scheme is only open to the first 10,000 applicants each year.

With a small deposit, buyers can enter the market earlier but they will still need to pay back the 95 per cent plus interest, meaning they will pay tens of thousands of dollars in extra interest across the life of the loan and face larger monthly repayments, potentially putting them in a worse financial position.

Using the First Home Buyers’ Deposit Scheme is a balancing act. If you manage to enter the market just below a boom, you’ll be glad you took advantage, and the extra interest may end up costing you less than waiting.

First Home Super Saver Scheme

The First Home Super Saver Scheme allows first home buyers to voluntarily contribute up to $30,000 into their superannuation accounts and later withdraw this amount (plus earnings, less tax) to purchase their first home. These contributions could come from salary sacrificing or after-tax contributions.

When you save through your super, you pay less tax, which means you can save a bigger deposit, faster. Plus, couples can double the amount and save up to $60,000. However, saving this way does require a lot more administration and if you need the funds for something else, you won’t be able to withdraw them.

Stamp duty exemptions

Stamp duty is a huge additional cost that many first home buyers neglect to consider when budgeting for their purchase. It’s such a large cost, that it plays a key role in the revenue raised for state governments. The NSW Budget Statement 2019-20 reported $345 million less revenue resulting from a weak residential property market that lowered expected residential transaction volumes.

From specific first home exemptions to exemptions for transfers between families or off the plan purchases, there are plenty of stamp duty exemptions available in each state.

Equipping yourself with an understanding of the lending process and first home buyers concessions can help you to be a fountain of knowledge and guide your kids through the complexities of buying a home. Additionally, encouraging your kids to invest in professional financial advice will help to put them in a good possible position to purchase a home.

It’s the best gift you can give your kids. Plus, it lets you enjoy your retirement in peace.

For more information about first home buyers in your state, click the link through to the relevant body: ACT, NSW, NT, QLD, SA, TAS, VIC, WA.

  • Darren James, of MBA Financial Strategists, is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.