The struggle of buying a new home has become all too real for Millennials with the ‘Bank of Mum and Dad’ – in many cases – proving beneficial in reaching their dreams of being property owners. And now a new report has claimed having rich parents is more essential than ever to achieve wealth.
For years children have been relying on their mothers and fathers to boost them into the housing market, with their salaries not enough to purchase the property they’d always hoped for. This has been backed up by researchers from the University of Sydney, who have claimed you are not considered among the wealthiest of Aussies unless you fit into a certain category. Either you are making your money from investment properties or you have cashed-up parents to fall back on.
So even if your salary is an impressive $150,000 a year, it doesn’t increase your position on the wealth ladder in the Land Down Under anymore. This is paired with the fact Baby Boomer parents are more willing to lend thousands of dollars to their kids to put a down payment on a house or space of land.
“What distinguishes successive generations, then, is less a difference in absolute wealth holdings than a difference in modes of access to wealth,” the report published on Sage Journals explained. “While older Baby Boomer generations were in a better position to buy property through wages alone, this option has become less accessible to younger generations who are increasingly dependent on the ability and willingness of their parents to lend or give them money for a deposit in order to enter the housing market.”
It added: “In short, social mobility is increasingly associated with the asset position of parents not only for the super-rich, but also but ordinary households.” However, the report also explained there is growing evidence to suggest parents are putting themselves in an unsavoury position financially to benefit their children, even taking on debt or guaranteeing loans to support them.
With pay increases few and far between, the report explained the only Aussies who are certain in their wealth are investors, who make money by renting out their investment properties to add to their finances. Outright home owners came in second place, as they have no mortgage to worry about, followed by home borrowers who are still paying off their massive loan.
Renters were next, with prices increasing and wage growth slowing, meaning they had an uncertain future financially and could very well fall under pressure for money matters. Then of course, the homeless population were at the bottom of the wealth chain with no assets, wages or welfare to carry them through life.
Sadly, there are some parents who have fallen into the trap of lending to their kids. Although there are many who pay back their mum and dad promptly, for one grandmother the situation is dire with fears she could lose her own home after helping her son to buy his first property with his partner – only for them to allegedly stop making the loan repayments.
Appearing on Channel 9’s A Current Affair earlier this year, Janice Lang revealed she agreed to help her son buy his first home for his children and became a guarantor on the loan, putting her own home up as surety. “The Australian dream is to own your own home, we wanted to give that dream to our son,” she said on the show. “My grandchildren are beautiful and they deserve everything, and that’s all we wanted to do.”
— A Current Affair (@ACurrentAffair9) July 29, 2019
However, she claimed her son has failed to meet his mortgage repayments for the $210,000 loan ever since, meaning she could now face losing her own property. It’s sparked a nasty family feud and it ended in a violent outburst on air, as the son appeared to launch himself at a camera man as he attempted to interview him outside his house.
Due to the couple not making their repayments, their loan has now increased by $30,000 – and as that increases, Janice’s home looks to be more and more on the line. “We were married here, we’ve got pets buried here, we’ve had so many fun times here as a family, we just love it, and we work hard for it,” she added.
“It just went really bad. He wasn’t going to be happy until he saw us bankrupt.” Lending money to adult children is fairly common in Australia, with parents trying all they can to help their families secure a future in a tough property market.
However, money expert Effie Zahos told the show that parents need to be wary and know the costs should their adult children not live up to their end of the bargain. “When you become a guarantor, you are actually saying that I will actually step in, if you can’t make these repayments, so you will become responsible for that debt,” she said on the show. She added: “It is a case of sitting down and talking with your children, if I am going to do this, it is under my conditions, these are the rules, and there are lots of legal documents that you can download or get some assistant to set up that arrangement.”
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.
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