Property deposit - 10% or 20%?

[Julia]

I think the simple fact that young people need to go to the lengths of asking their parents to help them buy a house is a sign that something is wrong.Expecting people to save a 20% deposit(although i don't believe this is true) even on a 300k house is a fairly tall order, and could take some many many years.

People saved around 20 - 25% in those distant days when debt was only used for a mortgage, rather than the current practice of running one's life on debt.

I do remember, though, that in NZ there was a government mortgage available for first home buyers at 3%.
That figure is a bit irrelevant, however, when I can't remember what other interest rates would have been at the time.
We saved the deposit for our house by both living with parents before getting married, and both working two jobs for some years.

Does anyone know if going guarantor on a property was a common thing 20-30 or 40 years ago?

No. It was no less risky then than it is now. We were given money towards buying the block of land as a wedding present by my parents. Imo it's fine to give your kids some help as long as they're making every effort themselves, never if they have a sense of entitlement and expectation that you should do it.

Often far more useful at that stage of their lives than when you die.

 

[Smurf1976]

I should have added to my previous post that I'm not saying I would never lend anyone money, just that if I choose to do so then I am accepting what amounts to a very high risk situation which may end badly.

Of course, if you can afford to treat the "loan" you are providing as a gift and have no expectation of ever being repaid then it's a very different scenario and there's less reason to be cautious.

 

[young-gun]

People saved around 20 - 25% in those distant days when debt was only used for a mortgage, rather than the current practice of running one's life on debt.

Absolutely, not making excuses, I'm simply curious as to comparisons between 30 years ago and today, the biggest being, as you stated, that debt is now taken on without so much as a second thought. From plasma tv's and fast cars to speculating on investments of all types.

We saved the deposit for our house by both living with parents before getting married, and both working two jobs for some years.

Sorry but living with my parents(although now split) for this long was simply not an option for me

No. It was no less risky then than it is now. We were given money towards buying the block of land as a wedding present by my parents. Imo it's fine to give your kids some help as long as they're making every effort themselves, never if they have a sense of entitlement and expectation that you should do it.

I would have to disagree and say that going guarantor for your children on a property right now is possibly once of the riskiest moves anyone could make. Again I'm unsure of the economic picture painted some 30 years ago, perhaps it did look as grim as it does at present.

Agree with the helping out, or simply giving your children a hand. My sole aim at the moment is to establish enough wealth over the next few years to give my family/future children the absolute best chance in life, with hopefully very limited financial concerns. And no I don't mean bring them up to be little rich snobs.
....I imagine parenting is a very delicate task.

 

[Steve C]

I am in the process of building my first house with my partner and have recently undertaken a mortgage. We borrowed $415k with a 10% deposit (we required mortgage insurance). I explored options in regards to guarentor's and it is just to risky to put your parent's house up as protection, who knows what might happen in the future. I was also offered 45k by my partners parents to avoid having to get the mortgage insurance but I didn't want to have that "I always owe them something" mentality and decided to stand on my own two feet.

Our parents did however put in $8k each as a gift (engagement present) to help bring us up to the 10% deposit and also cover the fees (don't forget that there is also around $7k in fees and mortgage insurance over and above the base 10% amount).

All the best,

Steve

 

[Glen48]

OUCH That will hurt in years to come!!!.

 

[Julia]

I am in the process of building my first house with my partner and have recently undertaken a mortgage. We borrowed $415k with a 10% deposit (we required mortgage insurance). I explored options in regards to guarentor's and it is just to risky to put your parent's house up as protection, who knows what might happen in the future. I was also offered 45k by my partners parents to avoid having to get the mortgage insurance but I didn't want to have that "I always owe them something" mentality and decided to stand on my own two feet.

Good for you.

Our parents did however put in $8k each as a gift (engagement present) to help bring us up to the 10% deposit and also cover the fees (don't forget that there is also around $7k in fees and mortgage insurance over and above the base 10% amount).

Sounds OK, Steve.
Just a question which of course you're not at all obligated to answer:
is servicing the mortgage dependent on both of you working, and if so, how would you manage the situation were one of you to no longer be working for whatever reason?

 

[Steve C]

OUCH That will hurt in years to come!!!.

Are you referring to the size of my mortgage? I agree, it is by no means small but you will find lots of first home buyers borrowing more then that. With current interest rates my weekly repayment is around $600 a week, which is much better value then paying $500 in rent and paying someone else's loan - probably borrowed a bit more then I would have liked to but its a great location near the city and its a new 3x2 house, I could sell it the day after its built for $500k so not to concerned... yet (prays interest rates don't go 10%+ in the next couple of years)

 

[Steve C]

Good for you.


Sounds OK, Steve.
Just a question which of course you're not at all obligated to answer:
is servicing the mortgage dependent on both of you working, and if so, how would you manage the situation were one of you to no longer be working for whatever reason?

Sorry about the double post - Yes Julia I believe it is calculated on both of us earning a salary...I have income insurance in case their is a worst case scenario and luckily both our parents are stable financially so worst worst case scenario we could always rely on them as a safety net or simply sell the house and take a nice little profit even in the current market. In coming years I will advance in my career and start earning some good money which will help things. Sorry to jack your thread OP! - a good lesson though, don't borrow more then you can comfortable repay!

 

[TMC93]

I have been looking at buying a house recently in a few locations, mainly brisbane/mackay/rockhampton as thats where my work is based, can comfortably afford a 10%-15% deposit on some nice houses in all of the areas but like the stock market, i am going to wait a bit longer and save for 20-25% as the property market is not going to vanish overnight (that i am aware of). Buying property is a huge thing for me and i wouldn't take any decision likely but for a lot of my friends they are pretty much long term renters which doesn't suit me.

 

[Glen48]

They are all renters, only the the landlord could be a bank or private individual.
Save up your 25% and pay cash in a few of years time

 

[young-gun]

I have income insurance in case their is a worst case scenario

I'd recommend checking with your super fund to see that they don't provide you with income protection. Some are a bit average, but mine is fairly comprehensive, and means I don't require income insurance. No point in paying for something twice, and if you do check it out make sure you research the super funds policy thoroughly.

 

[Judd]

Hmm, financial journalists must be scouring the forum looking for subject matter on which to provide worthy articles to justify their salary. Just kidding.

http://www.smh.com.au/money/planning/home-help-has-strings-attached-20120724-22lfg.html

Home help has strings attached

Date July 25, 2012

Housing affordability is a big issue for first home buyers, with many parents being asked to go guarantor for the loan. John Kavanagh looks at the risks.

Most young people struggle to buy their first home. It has never been easy but over the past decade, the big increase in property values has made it particularly hard.

Parents who have the means may be keen to help their children get into their first home. Others may feel they are under pressure to help. In their efforts to assist their children, many parents end up getting into a financial arrangement that has the potential to be dangerous - acting as guarantor.

If the borrower defaults, the lender will ask the guarantor to pick up the repayments or, more commonly, pay out the loan. Financial counsellors say few parents are prepared to deal with that when it happens.

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