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A rising tide lifts all ships. Yet if you haven’t gotten onboard, the swim to the surface is even longer.

Much is the same in the Australian property market.

Those that are born into families without property wealth are increasingly forced onto the back foot when it comes to getting a foothold into the market. Property is the marker of the “haves” and the “have nots” and this is set to continue.

Never is this more apparent than when it comes to the concept of a family member standing guarantor for a first home buyer’s loan. This home loan feature allows a purchaser to use wealth that their family members have built up in a property to buy themselves.

It’s regularly marketed as a way to leapfrog into the market more quickly and to avoid the otherwise inevitable cost of Lenders Mortgage Insurance incurred from having less than 20 per cent in cold hard cash for a deposit.

Family guarantees may be a great way for parents to offer their children the benefit of a lump sum of funds without giving them an outright gift, but this product also has the potential to widen the wealth divide even further.

Those whose parents are wealthy enough to have equity in their house or a significant chunk of cash left around, either through good property market choices or diligent repayments, are in the fortunate situation to not have to save as much money to buy a home as those who do not. It’s that simple.

On Monday, NAB released statistics that found 6.7 per cent of first home buyers are using a family guarantee to buy in, compared to 4.8 per cent in 2010.

This is largely a bonus for 20 to 29 year olds, a cohort that makes up 73 per cent of the market for the NAB product, followed by 30 to 39 year olds, at 21 per cent. A further 3 per cent using the guarantee were in their teens.

As house prices increase and equity in the homes of those parents that do have property holdings subsequently rise, their capacity to stand guarantor grows.

This effect is also divided strongly between those with homes in attractive strong-growing areas and those in areas that are not so sought-after.

Those who own properties in desirable suburbs, such as Sydney’s Hills District, will feel this “wealth begetting wealth” effect strongly.

Castle Hill’s median house price soared $173,333 last year, to $1,040,000.

In the lower priced, lower socio-economic area of Mount Druitt, property prices increased $37,070 to a median of $400,500.

You can see how other Sydney suburbs fared here.

In Melbourne, the story is similar.

Murrumbeena surged 27.5 per cent to the end of 2014 – bringing the median price up to $954,000. This is an increase of just over $200,000.

Meanwhile, the cheapest in the top 10 performers in Melbourne, Braybrook, jumped 21.7 per cent, bringing it to $486,750. This is an increase of almost $100,000.

By sheer power of the numbers, lower priced areas with strong percentage price growth still lag behind those suburbs even with equal percentage growth.

For those whose parents have property in these growing areas, they have the capacity to skip LMI completely and buy in sooner than their savings will allow them.

For those who don’t? It’s about to get tougher.

Family guarantees inevitably pour more money into an entry level housing market that many first home buyers currently struggle to enter. All this to ensure that the children of the fortunate are given yet another opportunity to get in first.

Research from The Australia Institute last year found that the top 20 per cent of people have five times more income than the bottom 20 per cent. It also recorded that the top 20 per cent holds 71 times more wealth.

For 20-somethings with parents who rent or who have property outside of the fashionable growing areas, the ladder to home ownership is set to get that little bit steeper.


Posted by Jennifer Duke – Domain (Fairfax) on 14th April, 2015