Sky-high property prices and competition from overseas investors is enough to drive first-home buyers to despair. But instead of giving up on the great Australian dream, many are thinking outside the square.
Co-buying with parents or friends is an increasingly popular strategy helping buyers get a leg up in the pricey property market. Pooling their savings with others helps new buyers boost their purchasing power and sidestep costs such as lenders’ mortgage insurance.
Creative new buyers are even turning to crowdsourcing to build a deposit. Seventeen-year-old Caitlyn Argyle has raised nearly $6000 of the $48,000 deposit she needs for an investment property on the Gold Coast. She has promised one night of accommodation in her future home for those who make upfront payments of $100 and week-long stays for payments of $1260. For Argyle, appealing for the public’s help was the best way to avoid more than a decade of saving for a deposit.
“I’ve been reading for some time that a house is a good investment and decided that investing in one is what I need to do, but I also kept hearing that it’s getting hard for young people to invest and get ahead,” she says on her Indiegogo page.
“If I wait until I save the money up from working it will take me many years to raise a deposit. The longer I take, the more expensive houses will become and the longer it will take me to raise the money…in fact after expenses, taxes and increasing prices it might take me 20 years to buy one!”
It’s no wonder first-home buyers, daunted by ever-increasing property price tags, are turning to alternative buying methods. Property price growth is outstripping wage growth across Australia. In Sydney, property prices surged by 15 per cent in the past year and wages grew by two per cent, Deloitte’s 2015 Mortgage Report revealed.
Rather than playing an increasingly difficult game of catch-up, first-home buyers are combining funds with family members and friends, says ME head of home loans Patrick Nolan.
“Co-ownership is a new and evolving model where usually it’s either friends or family jointly going into purchasing a property together,” he says. “They wouldn’t otherwise do that unless it was to support the first-home buyer.”
A survey of 1000 people by ME last year found 14 per cent of buyers bought jointly with parents, 12 per cent bought with other family members and 4 per cent with friends. The figures are evidence of first-home buyers thinking of new solutions to the challenge of home ownership, Nolan says.
“People are now more aware of how to kind of work around these things and talk about the various opportunities and crowdsourcing is a really good example of that,” he says.
But pitching in with others does have its pitfalls. Depending on the laws of each state, co-buyers may forfeit their rights to first- home buyer grants. This is particularly the case for people buying with their parents, who already own property.
Falling out with purchasing partners is another obvious drawback. Nolan recommends setting out a clear legal agreement.
“People can get these sorts of agreements established with the use of a lawyer so everyone’s clear on what the expectations are,” he says. “It should include simple things, such as what happens when one person wants to sell.” While first-home buyers are the big winners in co-buying deals, parents can also reap financial rewards.
Chris Browne from Rising Tide Financial Services says two of his clients came up with a novel way of helping their child save a deposit.
“The parents told their child to ‘come back home and pay us $150 board per week’,” he says. “It all went into their offset account so it helped them with interest on their own mortgage and there was a formal agreement saying they’d relinquish $100 of that $150 per week board when their child was ready to purchase a property. So they were paying $150, but saving two thirds.
“This model [works] because it teaches people to save and that’s what I like about it, as opposed to just gifting money for a deposit.”
But Browne warns parent and child co-buying isn’t for everyone and recommends both parties seek legal advice before buying property. ‘It’s quite challenging sometimes’
Living under the same roof as the in-laws might sound like a nightmare for some, but Tim Richmond says he is living the dream. Richmond and his wife Gaynor bought their first home in the Melbourne suburb of Coburg North in January with the help of Gaynor’s parents Alan and Jan Silsbury .
The seven-bedroom, five-bathroom house cost them $975,000 with the Silsburys tipping in $216,500.
“It’s essentially a multi-dwelling house,” Richmond says. “So under the one roofline there’s a five-bedroom house and a two-bedroom house. They’ve got their own front door, their own lounge room, kitchen, bathrooms and bedrooms and we’ve got our own.
“Co-habiting with your in-laws is quite challenging sometimes. There’s lots of compromises, but the best thing about it is my three-year-old has his grandparents living with him all the time and that’s really perfect.”
Without the financial help of the Silsburys, the Richmonds say they would not have been able to buy the kind of house they wanted for another five years.
Before moving into their Coburg North property, the Richmonds and the Silburys rented a four-bedroom house in Ascot Vale.
“That was crazy, it was just too close,” Richmond says. “We really wanted to look at a house which would suit everybody’s needs.
“It’s a big risk because obviously as a first-home buyer you try to buy under half a million and have a normal kind of mortgage, whereas our mortgage starts with an eight.
“As a first-home buyer I never thought I’d live in that type of property, but you’re kind of forced to look at that kind of property because getting a three-bedroom house with five people, four of them adults, is not feasible.”
The living arrangements also come with child-minding perks. Three-year-old Harvey is cared for by his grandparents two days a week, saving the Richmonds thousands in childcare fees.
“I think learning from multi-generational people is great,” Richmond says. “I want him to have a varied education and having your grandparents around is very important.”