Gen Y, The Property Market and The Bank of Mum & Dad
Gen Y Home Buyers
Those born between 1981 – 1994 are aptly known as Gen Y, and they are a large percentage of home buyers. One thing that we hear frequently from parents as property prices increase is ‘how are our kids going to afford to buy their first home?’. The belief is that Gen Y are more interested in travelling, an active social life and some members of the older generation feel as though Gen Y have unrealistic expectations and want their first home to be their dream home.
Leaders in Property Investing
Despite affordability concerns the Gen Y demographic are leading way in property investing. How they are doing this creates a proven pathway and strategy for those who are actively looking to do the same. One of the growing strategies is ‘rentvesting’, which refers to those individuals who purchase an investment property in a location they can afford, while renting in a suburb they wish to live in. Aside from owning a property there are several key benefits to this strategy which include;
– Tax benefits
Lifestyle benefits include leasing a property closer to work, social activities & friends, and rent is generally lower than a mortgage in these locations allowing the individual to add to the rent they are collecting on their purchased property. By rentvesting they have the ability to be flexible with their work and education, they can pack up and chase opportunities more freely, and then there are the tax benefits of owning an investment property that they should consider. As enticing as the first home owner grant is, in many cases Gen Y are forgoing this to pursue a stronger long-term strategy.
As mentioned earlier some Gen Y may have unrealistic expectations as to what they buy, but they are also the most likely to get their hands dirty and renovate. In many cases if a home is clean and simple they can work on it over time and bring it to a level they are happy with. Unlike older generations who are more likely to hire tradespeople, rightly or wrongly Gen Y are more likely to have a go themselves. The main motivation is affordability, they can buy in a better location and add value to the property over time.
“The Bank of Mum and Dad’
In writing this I am not of the belief that they are not feeling the affordability pinch, however Gen Y are committed to home ownership and are finding alternate ways to buy their first property. In a growing number of cases, this creativity often leads to the ‘bank of mum and dad’. According to a new report from the Digital Finance Analytics (DFA) , parents are out performing many community banks and is now the 11th largest lender in Australia. Currently, parents are writing more home loans than AMP Bank, Citigroup, and HSBC Bank Australia. The ‘bank of mum and dad’ is estimated to have granted $16bn worth of loans and is particularly attractive because in many cases they are more lenient with late payments. This may be in the form of a cash gift or loan, or other help such as paying the stamp duty.
On the downside, this creates inter-generational issues and pressure with older home owners potentially giving away value which should be part of a retirement nest egg, and it forces some young buyers under the water line due to holding additional debt obligations. So mums and dads, don’t be surprised when you get a tap on the shoulder.