Farmer and retired businessman Trevor Eriksson argues that first-home ownership has been ‘bloody tough’ for every generation, but that kids of today face challenges their predecessors didn’t.

‘Jobs these days aren’t as permanent as they were when we were all starting out, and people seem to find themselves going through stints of joblessness a lot more,’ he observes. ‘You can’t go out and just buy a home any more. You have to think a lot more these days about what’s going to happen down the track.’

After a year of soaring price growth in capital cities, where the national median price sits 10 times above the national median wage, Eriksson – who helped his son buy a unit – isn’t the only one concerned about the herculean task faced by new buyers.

Reserve Bank of Australia governor Glenn Stevens said in early December that the impact of rising property prices could bring about a situation where the next generation of home owners won’t be able to live in the same city as their parents.

‘Perhaps it’s not a bubble,’ he said in a December interview with The Australian Financial Review. ‘We may have done things as a society to make, in some fundamental sense, prices quite high.’

For first-home buyers looking at buying property in capital areas around the country, the property ladder’s first rung has never before seemed so far out of reach.

But for a lucky few, parents like Eriksson are stepping in to help bridge the gap – and finding in the process that direct financial assistance is useful, but solid advice is better.

Eriksson offered both funds and advice when his son Hugh, 30, approached him five years ago after his first year of full-time work pitching for help to buy his first home.

Marketing manager Hugh had a small amount of savings, but it was nothing near a deposit. He told his father that with stable interest rates, a first-home buyer’s grant of $14,000 and a stamp duty concession on offer, he was unlikely ever to see conditions so favourable to buy his first home.

His father agreed, and gifted him the bulk of a deposit on a $360,000 apartment. ‘I guess I’m one of those parents that if I’m in a situation where I can help, I will,’ he says. But the advice that came with the cash has also created real value down the track.

Eriksson’s tip of buying an ageing, run-down apartment in a great location close to public transport was hardly rocket science. But without it, Hugh wouldn’t have netted the 16 per cent capital gain on the property that helped him by his next home, a two-bedroom semi in Neutral Bay in Sydney’s north.

Hugh almost walked out of the first home – a one-bedroom apartment in Wollstonecraft, also on Sydney’s North Shore – the first time he saw it. In poor repair, it needed a new kitchen, bathrooms, carpet and a paint job. His father, noting the unit’s location in a leafy street, walking distance from the train station and needing only light cosmetic work, urged him to reconsider. Hugh bought the home and used the first-home buyer’s grant and a small amount of savings to update it, netting himself a 12.5 per cent net capital gain – not bad in three years.

First home should be quality property

Eriksson’s strategy strikes a chord with buyers advocate Monique Sasson. The Melbourne-based adviser says first-home ownership is about buying ‘quality’ property in the best area you can afford.

That doesn’t necessarily mean the best-looking home in the street, rather, apartments in small blocks that have a uniqueness, in a pleasant locale close to shops, good public transport and the city.

Project manager Will Churcher*, 29, was after different financial support when he approached his father fresh out of university in 2008 with a bold proposal for a crumbling investment property in Sydney’s Woollahra that had been owned by the family for years.

‘Dad had an investment property that he wanted to sell. He’d had it valued, and I knew that if I spent time renovating it, it could be worth a lot more,’ Will says.

He persuaded his father to sell him the two-bedroom unit for $2, which qualified him for a first-home buyer grant, then $14,000. He used the grant money and a small amount of savings for renovations.

He did the lion’s share of the work, including demolition to open up the ground floor unit and putting in doors for garden access .

After living there for one year to satisfy grant conditions, Churcher sold the property and, as agreed with his dad, kept the difference between the valuation at the time he bought it and the sale price of the renovated apartment one year on, minus interest.

He admits it was an unconventional method that relied on a high level of trust from his dad, but says he’d still be trying to scrape together his first deposit if he’d gone about it any other way.

His father, who works in finance, acknowledges that he was happy to help. The process wasn’t hugely financially exhaustive, but delivered a huge head start to his son’s financial security.

Five years on, Churcher lives in a share house with friends, subsidised by rent from a three-bedroom apartment he owns in Sydney’s Rose Bay and a 60-square-metre commercial suite one kilometre from Sydney’s CBD that he bought through a self-managed superannuation fund.

It’s not rocket science

He knows he’s the exception to his generation, but says it’s not rocket science.

‘If you’ve got that level of trust with a parent and you think they can help you out, then there’s no reason why you shouldn’t ask. The sooner you get started, the better.’

Other agents suggest that first-home ???????-buyers crack the market by teaming up with friends to buy an investment property together, sometimes looking further afield to the outer rings of a metropolitan area where larger homes can attract stable demand and strong yields.

A near-new two-bedroom, two-bathroom townhouse in Mount Druitt in Sydney’s north-west costing around $350,000 is likely to bring in more than $350 weekly in rent, says the local Ray White agent. A four-bedroom home on a 400-to-500-square -???????-metre block could fetch above $450 a week.

With yields above 5 per cent, the returns look compelling.

Parents unable to stump up a deposit for their kids can help in other ways.

‘It’s the kids who budget and live within their means who come to me ready to buy a property,’ says Karen Forbes, Smartline mortgage broker and mother of two uni students. ‘That advice comes from parents.’

Forbes advises her kids to deposit cash into a savings account on pay day, not at the end of the month. Credit cards are also a no-no, or if they feel they need one then keep the limit low (‘well below $2000’) because banks will always assume a loan applicant is in debt to the full amount.

‘Say you’ve got a $20,000 limit, the bank will assume you’re making monthly repayments for the full amount and it counts against the loan,’ she says.

Her advice for first-home buyers? ‘Ditch the fancy cars and the expensive hobbies. I see some [potential] young ones who decide it’s a good idea to lease a $50,000 car. They don’t need it, and it eats into savings.’

She’s also got some no-nonsense advice for parents with cash to help their kids. ‘Avoid acting as a guarantor for the loan, and providing the family home as security. There are other ways to help.’

Parents can take out a small loan on their property or redraw a small amount on an existing loan to gift to their children. This way, parents are liable for a manageable sum of money, rather than having the family home on the chopping block.

‘You can take out a limited guarantee for say, $50,000. It means if the kids skip the country or default on their payments, all the bank can get from the parents is $50,000, and in most cases, there are other assets they can sell to repay the debt before the house.’

Kids keen to save the deposit themselves can open a First Home Saver Account (FHSA) and take advantage of a generous annual kicker from the government.

Since 2008, first-home buyers have been able to earn 17 per cent a year on deposits up to $6000 through the government-funded FHSA program. This is on top of bank interest, for example 3.5 per cent from ME Bank.

Individuals have to contribute a minimum of $1000 a year for at least four financial years. Once four years are up, the cash can be used for a home, or tipped into super.

Savers can satisfy the four-year criterion in as little as two years and two days, Paul Smith of Loan Market says. If a saver opens the account and makes their first deposit of more than $1000 before June 30 this financial year, they will be able to access their funds by July 2, 2016, the start of the fourth financial year. However, they won’t qualify for the full 17 per cent a year government contribution in the first and the fourth year.

Posted by Samantha Hutchinson – Australian Financial Review on 11th January, 2014