“Parents are risking their personal financial security by backing their children into home ownership,” the CEO of South Australian HomeStart Finance, John Oliver, has said.
“If there is a change of circumstances and a child can’t make repayments, it is the parents’ assets that are on the line for the portion they have guaranteed. This could mean the lender will allocate some of the parent’s income to repaying the debt, or in the worst case scenario, the parents could lose the family home.”
Oliver’s comments come after the outgoing Reserve Bank governor, Glenn Stevens, said in an interview with News Corp that the only way for young people to get onto the property ladder in Australia’s most heated housing market, Sydney, is with the help of their parents.
“I think that a lot of people of my generation are actually going to find themselves, if they haven't already, helping their children into the housing market because that may be almost the only way that their children can enter the Sydney market,” Stevens said.
According to recent data from CoreLogic, more than two out of every five house sales in Sydney over the past year sold for at least $1 million. Just under one in five units (17%) sold for at least $1 million.
In addition to jeopardising their own financial futures to help their children buy in the pricey Sydney market, Oliver said parents also risk their own chance to borrow money.
“The credit rating of parents will also be affected which may cause problems if they need to apply for a loan themselves, and worse still, they may not be able to use their own home as security when taking another loan,” he warned.
According to Oliver, state governments need to shoulder some of the burden. He said HomeStart Finance, which is backed by the South Australian government, had assisted one in eight first home buyers into home ownership in South Australia through its low deposit loans and shared equity products.
“The housing affordability crisis shouldn’t be a burden that parents have to shoulder for their children, but instead, Governments should be looking to implement measures that directly address the issues home buyers are facing.
“Since HomeStart was established in 1989, it has helped almost 70,000 South Australians into ownership,” he said.
“Many of these households wouldn’t have been in a position to obtain finance from a mainstream home loan provider at the time of buying a home. Whether through a lack of savings to put towards upfront costs such as the deposit, or not being able to borrow a sufficient amount of money, HomeStart has been able to offer solutions to these barriers.”
Oliver is also urging governments to reconsider allowing first home buyers to access their superannuation to fund a home deposit, mirroring the successful Canadian Home Buyer’s Plan.
The Canadian Home Buyers’ Plan enables first homebuyers to withdraw up to $25,000 from their superannuation for the purpose of using it for a deposit on a house, which then has to be replenished over the next 15 years.
“It is ironic that a household in difficulty with their mortgage has the option to access superannuation to clear arrears, whereas a first home buyer in an otherwise good financial condition cannot temporarily access their super for a deposit and then replenish those funds over an extended period as occurs in Canada,” Oliver said.
HomeStart originally argued for this model in its submission to the Senate Inquiry into Affordable Housing in 2014, but it was later mooted by then Treasurer Joe Hockey.
