Guide to Family Home

It’s hard to think of anyone who has achieved long-term financial security without owning at least one piece of residential property—typically the family home. Most of the people we see either own a home, are in the process of paying one off, or aspire to do so. This is why we make owning a family home a key aspect of our advice.

When we see clients who already own their home, they often ask us common questions. These include: Should I sell my existing home to upsize? Should we renovate? With interest rates changing, is our mortgage still right for us? Is our home protected if something goes wrong (especially important for self-employed clients)? Should I use the equity in my home to invest? Should I use my home as security to help my children buy their first property? The list goes on.

For clients who do not yet own a home, the questions are just as pressing: Should I rent or buy? Or should I consider 'rent-vesting'—renting where I want to live and buying an investment property elsewhere? Should I buy something affordable for now and upgrade later? Or should I stretch my budget to get into my 'forever home' straight away? Should I put my savings into shares instead of a deposit?

These are all excellent questions. We've decided to produce this ebook as a way of helping you find the answers to them.

Buying a home has never been a bigger issue for many Australians. We see this reflected in the nation's home ownership rates. According to the 2021 Census, 67% of Australian households own their home (either outright or with a mortgage). While this is still a healthy majority, it represents a gradual decline from the roughly 70% level seen in the latter part of the 20th century. This trend is particularly noticeable among younger generations, who are finding it takes longer to get a foot on the property ladder.

You could argue that this isn't a dramatic drop, especially considering our population has grown strongly and home prices have grown even more so, particularly during the boom of the early 2020s. Housing affordability remains a significant challenge, yet nearly seven out of ten households have managed to secure their own piece of Australia.

Owning a home, and the variations on that theme, remains a major point of interest for our clients, whatever their age. What's more, the home continues to be the greatest store of wealth for most people. Superannuation is catching up, and as the system matures, it may one day overtake the family home as the most valuable asset for the average person. However, it's likely that as super balances grow, home values will also be influenced, due to a 'wealth effect' between these two asset classes. That is, people may be more willing to take on larger loans to buy a home as their retirement savings rise. Furthermore, as older generations pass their wealth on, their adult children often use at least some of it to purchase or upgrade their own home. Wealth from other parts of the economy always seems to find its way into the residential property market.

Such is the importance of the family home in our thinking: people feel wealthier and more secure the better their home is. As a result, if the economy continues to grow over the long term, the value of the average home is likely to keep growing as well.

Please feel free to share this ebook with anyone else you think would find it beneficial. And, if you'd like to discuss your own situation, please don't hesitate to contact us.

Buying a family home is a unique purchase. It is the only large acquisition we make that is one part financial and an equal part emotional. Alright, we admit it: it is perhaps two parts emotional and one part financial. These elements intersect, meaning every buyer has a unique list of personal preferences for what they are looking for in a home.

There are three main variables that impact these preferences: location, features and price. Let's look at each of these in turn.

Location

Most people start their property search by first deciding on a location. Then, they look for a specific house within that area.

These are the common factors that influence where people choose to live:

• Amenity (simply choosing the ‘right’ suburb is very important to many people);
• Schools;
• Transport (public and private);
• Parks and leisure facilities;
• Shopping and dining options;
• Natural features such as coastline or bushland;
• Proximity to family and friends;
• Noise levels (e.g. how close a property is to a freeway or airport flight path);
• The overall feel of the street and neighbourhood;
• Proximity to work; and
• Digital connectivity (access to reliable, high-speed internet is now essential for many).

A word of caution on proximity to work. Many people buy a home for its convenience to their workplace… and then change jobs. It pays to think not only about where your current job is, but also where future work might be. This is easier in some occupations than others. A teacher, for example, may have many potential schools to work at, whereas a marine biologist might have fewer options.

The Role of the Adviser

When buying a family home, there are many factors to consider. Typically, a buyer needs to 'trade-off' some of these factors. Talking them through with a knowledgeable person can save a great deal of time, money and heartache. A good adviser more than pays for themselves here.

To give just one example: many people seriously underestimate the impact, both in time and money, of living a long way from where they need to be. Many outer suburbs, for example, require families to own two cars as public transport is limited and services are spread out. The RACV estimates the average annual running cost of a medium-sized car is now over $18,000. If you choose a location where your family can comfortably rely on one car instead of two—by being closer to public transport, schools or work—you could save that $18,000 each year.

At a 6% interest rate, dedicating that amount to mortgage repayments would allow you to borrow an extra $250,000. Looked at another way, you could say the price of that second car is a quarter of a million dollars' worth of home.

Features

Our circumstances often dictate the features we need in a home. A family with three teenagers simply cannot live in a one-bedroom flat, no matter how much they love each other. A person with mobility challenges should typically look for single-storey homes without steps.

Other features are more a matter of preference. Some people love century-old Victorian-era homes. Others want something brand new. Some people swear by brick; others prefer different aesthetics.

Common features that people look for in a property include:

• Number of bedrooms;
• Number of bathrooms;
• Size and style of outdoor space;
• Size and style of indoor living space (e.g. open-plan or separate zones);
• A dedicated home office or study area;
• Style of housing (e.g. contemporary, classic, minimalist);
• Car parking;
• Swimming pools;
• Sustainability features (e.g. solar panels, good insulation, EV charging); and
• The overall ‘vibe’ of the property.

The Role of the Adviser

Once again, an experienced adviser can help clients identify the features they truly need. For example, many clients say they are buying their 'forever home' but don't factor in that their mobility might become an issue down the track. An adviser might prompt them to consider single-storey properties or those that could be easily adapted in the future.

Similarly, younger clients who haven't started a family often seriously underestimate their space requirements after children arrive. As any parent of teenagers will tell you, you don't just need more rooms; you need more space in every one of them!

Price

This one is pretty important. For most people, it's the decisive factor. No surprises here: the right home at the wrong price is, in fact, the wrong home.

The Role of the Adviser

Working out what a client can afford is where a financial adviser often makes their most useful contribution. Let's look at the main factors that determine how much you can afford to spend on a home.

Repayments

Most people borrow at least some of the money needed to buy a home. The loan repayment is typically the single biggest expense of owning the property.

ASIC's MoneySmart mortgage calculator is an excellent tool you can use to work out repayments. You can input a loan amount to see the repayments at a certain interest rate, or you can start with a repayment figure you're comfortable with and see how much that allows you to borrow.

It is vital to test how your repayments would change if interest rates were to rise. You must ensure you can afford repayments at a higher rate than what's currently on offer, unless you are fixing the rate for a long period.

To assess what you can afford, a common rule of thumb is to keep your mortgage repayments to around 30% of your after-tax income. If a buyer earns $80,000 after tax, this equates to $24,000 a year, or $2,000 a month. According to the calculator, with a home loan interest rate of 6%, she could borrow:

• $278,000 over 25 years;
• $300,000 over 30 years.

If she increases her repayments to 35% of her after-tax salary ($2,333 per month), she could then borrow:

• $325,000 over 25 years;
• $350,000 over 30 years.

This shows how small changes in your budget can affect your borrowing power. Remember, this calculation is for the loan amount only and does not include the deposit you will need to have saved.

Stamp Duty

In all Australian states and territories, stamp duty (or land transfer duty) is payable on a property purchase. This can be a very large expense that many first-time home buyers, in particular, forget to factor in. For example, someone buying a property in Melbourne at the median price (around $1.1 million in early 2025) would pay approximately $60,000 in stamp duty.

Thankfully, most state governments offer stamp duty concessions or exemptions for eligible first-home buyers up to certain property value thresholds. This can save you tens of thousands of dollars, so it's essential to check the rules in your state or territory.

Lenders' Mortgage Insurance (LMI)

If you borrow more than 80% of the property's value, your lender will almost certainly require you to pay for Lenders' Mortgage Insurance (LMI). This insurance protects the lender, not you, in case you default on the loan. The premium is typically a one-off payment, often between 1% and 4% of the loan amount, and can usually be added to your loan balance.

To avoid LMI, you need a deposit of at least 20% of the purchase price. However, the Australian Government's Home Guarantee Scheme can help eligible buyers purchase a home with a deposit as small as 5% without needing to pay LMI. This has been a game-changer for many first-home buyers.

Legal Fees

Purchasing a property involves legal work, usually handled by a solicitor or conveyancer. This includes reviewing the contract, conducting searches, and managing the transfer of title. You should budget between $2,000 and $3,500 for these services.

Council and Water Rates

These are ongoing costs for all property owners. They vary from one council area to another but can typically be estimated before you purchase.

Insurances (Building and Contents)

Lenders will require you to have building insurance from the moment you sign the contract, as you are responsible for the property even before you settle. It's also wise to arrange contents insurance for when you move in. Premiums for these policies have been rising, especially in areas prone to floods or bushfires.

Body Corporate Fees

If you buy an apartment, townhouse or a unit in a complex with shared areas (like driveways, gardens or lifts), you will likely have to pay body corporate (or owners' corporation) fees. These cover the maintenance and insurance of the common property and are disclosed to buyers before purchase.

The Real Estate Institute of Australia (REIA) reported that in December 1980, the median house price in Sydney was $76,000. In Melbourne, it was $43,000. Fast forward to mid-2025, and the median house price in Sydney is hovering around $1.6 million, while Melbourne's is approximately $1.1 million. That’s a staggering increase in value over four and a half decades. The growth is even more pronounced in the most sought-after suburbs.

Prices in other capital cities have also seen immense growth over the long term. For example, while Perth's market was subdued for several years in the late 2010s, it experienced a significant boom in the early 2020s, with prices rising faster than almost anywhere else in the country.

The point is this: over the long run, housing has been a very good investment.

Of course, share prices have risen a lot, too. The Russell Investments/ASX Long-Term Investing Report is one of the most reliable and unbiased reports on the market. The latest edition, reflecting data to December 2024, shows that over the past 20 years, Australian shares have returned an average of 9.1% per annum. This is an excellent result, but it sits just behind residential property, which averaged 9.8% per annum over the same period. Homes have certainly been powerful investments over the years.

Why have prices risen so much?

The media is full of theories and explanations. The most convincing ones include the following elements:

1. A long period of historically low interest rates through the 2010s, which dramatically increased borrowing capacity.
2. Australia’s economic stability. While our record 28-year run without a recession ended in 2020, the economy has proven remarkably resilient, providing a secure backdrop for investment.
3. Strong international interest in Australian property, connected to a perception of Australia as a safe haven with stable political and legal systems.
4. Sustained population growth, driven largely by immigration. Australia's population is growing by hundreds of thousands of people each year, and most new arrivals are eager to enter the property market.
5. Tax settings such as negative gearing for investors.
6. A deep-seated cultural belief in property, leading to a sense of 'fear of missing out' (FOMO) whenever the market starts to rise.
7. Significant government stimulus and household savings built up during the COVID-19 pandemic, which fuelled a major price boom in 2020-21.

Will this trend continue?

Home values can’t, and won't, go up every year. We saw a clear example of this in 2022 and early 2023, when the Reserve Bank of Australia began the most rapid series of interest rate hikes in a generation. Prices in most capital cities fell during this period, before staging a recovery through 2024.

One of the key measures of value is the housing affordability index. When homes become less affordable, demand eventually cools, which in turn eases the pressure on prices. In short, things simply cannot stay unaffordable forever.

Affordability—and therefore home values—are particularly sensitive to interest rate changes. Many recent home buyers who fixed their loans at record-low rates of around 2% have experienced this firsthand. Imagine a borrower with a $1,000,000 loan whose fixed rate expires. If their new variable rate is 6%, their annual interest cost skyrockets from $20,000 to $60,000. Because this interest is not tax-deductible, a person on a 37% tax rate would need to earn an extra $63,500 in pre-tax income just to meet that increased expense.

So, home values do not rise every year. That said, history shows they have risen significantly each decade. When you look at home values over several decades, there is a clear and powerful upward trend.

What are future home prices expected to be?

Fifty years is a long time, but many would argue that this is how long property should be held for. Property can be an inter-generational asset, and over multiple decades it has historically produced excellent returns. Obviously, precise predictions of future prices are impossible. There are too many variables. But we can look at some fundamentals to make an educated guess, starting with Australia's population.

The Australian Government's Centre for Population provides the following projections (based on 2022 data):

Income levels will rise too. If inflation averages a modest 3% a year, a $1,100,000 home purchased in Melbourne in 2025 will be worth over $3,600,000 by 2061 from inflation alone.

This population growth is driven by immigration and a strong desire to live in a country seen as safe, prosperous and desirable. These aspirations are shared by those already here; owning a home is a core part of the Australian dream. Over 80% of people aged over 65 own their own home—the highest rate for any age group.

There is no precise formula, and it’s a simplified model, but when you combine our cultural obsession with property, dramatic population increases in key cities, and long-term inflation, you get a powerful case for significant home value increases across the coming generations.

The data we've discussed seems to make a persuasive case for home ownership. But not everyone agrees, and it is always useful to look at a contrary position. Phil Ruthven, a well-known economics and social commentator, has long argued that owning the home you live in can be an irrational choice. He suggests that for many, you would be better off renting a home that suits your current lifestyle and implementing a disciplined investment strategy with the money you would have otherwise spent on a mortgage deposit and ownership costs.

Mr Ruthven’s argument centres on the high and often "hidden" costs of home ownership: the money and hours spent on maintenance and improvements, council rates, and the significant transaction costs like stamp duty every time you move.

There is certainly merit in what he says. If you move frequently or your home is in a suburb with poor capital growth, renting may indeed be the better financial option. For buying to outperform renting, house prices generally need to rise each year by enough to cover all the costs of ownership (interest, rates, maintenance, stamp duty) that a renter doesn't have to pay. The exact "breakeven" rate of growth changes with market conditions, but it's a real hurdle that needs to be cleared.

On balance, though, we find most people are better off owning their home. Fundamentally, the great advantage of home ownership is that it forces you to save. Outside of compulsory superannuation, most people would not save a cent without the discipline of regular home loan repayments. Each payment has a principal component that builds your equity, like putting money in the bank.

Yes, there may be other ways of managing wealth that look more 'efficient' on a spreadsheet, but few people have the discipline to follow them. If they don't buy a home, they often don't invest the difference; they simply spend it. Over the two decades to December 2024, residential property earned an average of 9.8% per annum. Most clients who owned properties during that time did very well, and those who didn't missed out.

What are the advantages of home ownership?

The advantages of owning your home are as much psychological as they are financial.

• Security and Stability. This is perhaps the biggest advantage. You are safe from the whims of a landlord who might sell the property, or from the stress of a volatile rental market with soaring rents and low vacancy rates. This is your home, your castle. It provides a sense of permanence and control that is important for wellbeing.
• Forced Savings. As mentioned, repaying a home loan is a disciplined way to build wealth over the long term. Later, when the home is paid off, you save on rent. A mortgage is eventually repaid; rent is due forever.
• Capital Gains Tax Exemption. When you sell your main residence, any profit you make is generally free from Capital Gains Tax (CGT). This is a massive tax advantage that is not available on most other investments, like shares.
• An Asset for Retirement. For most retirees, the family home is not counted in the assets test for the Age Pension. This can make a significant difference to your eligibility for government support. It can also be a source of funds in later life through schemes that allow you to access your home equity.
• Freedom and Lifestyle. You have the freedom to renovate, decorate, get a pet, or make changes to the property to suit your lifestyle, without needing a landlord's permission.

What are the disadvantages of home ownership?

Despite the benefits, owning a home isn't without its challenges and risks.

• High Costs. Property is expensive to buy and to hold. Acquisition costs include stamp duty (which can be tens of thousands of dollars), legal fees, and bank fees. Holding costs include council rates, water rates, insurance, interest on your loan, and ongoing maintenance and repairs. These can add up to a significant amount each year.
• Financial Stress and Risk. A mortgage is a huge financial commitment. If interest rates rise sharply or your income falls, the pressure of making repayments can be immense. Property prices can also fall, meaning you could end up with negative equity—owing more than the home is worth.
• Lack of Diversification. For most people, their home is their single biggest asset. This concentration in one asset, in one location, is a significant risk. While property has performed well historically, a major downturn in the market could have a much bigger impact on your personal wealth than if your money were spread across different investments.
• Illiquidity. A property is not a liquid asset, meaning you can't convert it to cash quickly or easily. Selling a home takes time, effort, and money. While home equity loans allow you to borrow against your property's value, this also takes time and comes with its own costs and risks.
• Opportunity Cost. The large amount of money tied up in your home deposit and repayments could have been invested elsewhere, potentially earning higher returns. This is the core of the "rent vs. buy" debate.

Who should own the home?

This is often a key question for self-employed clients. To them, the worst aspect of a business venture going wrong is the risk of losing the family home. This causes the most angst and pain and can place immense strain on a marriage. Ask yourself how your partner would feel if your business or investment activities put the family home at risk. It would likely rank as one of the most stressful events you could face.

As a result, the question of whose name the family home should be in is one that all business owners, company directors, or professionals in fields with high litigation risk (like medicine or law) need to resolve.

Important Note: The following information is general in nature. Structuring ownership for asset protection is a complex area of law and finance. You must seek specialist legal and financial advice tailored to your personal circumstances before making any decisions.

Should a spouse own the family home?

As a general principle, if you don't own an asset, you can't lose it in a lawsuit against you personally. Therefore, for people in 'risky' professions, having the family home owned solely by the spouse in the 'less risky' profession can often shield it from creditors. If one partner is a surgeon and the other is a salaried employee, it may be sensible for the employee to be the sole owner on the title.

This strategy is purely for asset protection from external threats. It is important to understand that the Family Law Act generally ignores nominal ownership between spouses in the event of a separation. The court has wide powers to divide all assets of the relationship, regardless of whose name they are in.

Family trusts and the family home

Owning the home in a family trust can be another effective asset protection strategy. However, this is a sophisticated approach with significant trade-offs. The main downsides are that a home owned by a trust is not your main residence, meaning:

• The Capital Gains Tax (CGT) exemption for a main residence is lost.
• Land tax may be payable annually, which does not apply to a main residence.

Despite these costs, there can still be advantages, especially for those with significant wealth or at high risk. A trust can help with estate planning and the inter-generational transfer of property. The security of knowing the home is protected from litigation can, for some, be worth the extra tax cost. This is a strategy that requires careful legal and financial advice.

When should homes be sold?

In our experience, people are often too quick to sell their home, particularly when upgrading. If you are living in your second or subsequent home, ask yourself this question: do you wish you had kept the first home you bought? For most people, the answer is a resounding yes.

We believe you should always consider never selling your old home when you upgrade, and instead retain it as an investment property. While not everyone has the financial capacity to do this, it can be one of the most powerful wealth-creation strategies available. The first few years may be financially tight, but before long, the value of both your new home and the old one will likely rise, and the decision will be validated.

A helpful strategy here involves using interest offset accounts. You can withdraw the equity from your old home and place it in an offset account against the loan on your new home. This reduces your non-deductible debt. Meanwhile, the loan on your old home is now fully deductible against the rental income it generates. If you think this could be relevant for you, please let us know.

What if your home is not expected to appreciate?

Clients in capital cities often assume home prices always go up. This is optimistic, but that optimism has a solid base: in most capital cities, they almost always do go up, at least eventually.

But outside the major capitals, the position is more complex. In some regional towns, prices can stagnate for years or even fall. If you choose to live in a regional area for lifestyle reasons, you might consider separating your lifestyle choice from your investment decision. This means living where you love, but owning an investment property in a major capital city with stronger long-term growth prospects.

Homes for children

Property is an inter-generational asset, and parents should be thinking that far ahead. The 'Bank of Mum and Dad' is now one of the biggest "lenders" for property in Australia, a testament to how difficult it has become for young people to enter the market.

Simply put, we encourage clients to help their adult children buy their first home as early as is sensible. A loan, a gift for a deposit, or acting as a guarantor on a loan can allow the next generation to enter the property market years earlier than they could on their own. This lets them buy at today's prices, not the much higher prices of the future. If the children can stay at home for a while and rent out their new property, the tenant and the tax benefits can pay much of the holding costs, accelerating the wealth creation process.

The main downside is the risk that the property may fall in value, exposing the parents under any guarantee. However, with basic common sense and a long-term view, this is a manageable risk that can create a permanent financial advantage for your children.

Apartments

Clients should approach buying an apartment with caution, particularly those bought 'off-the-plan' or in large, high-rise towers. In recent years, issues with build quality have highlighted the risks of new developments.

While the widening price gap between houses and units makes apartments a more accessible entry point into the market, the investment prospects can be highly variable. The best apartment investments tend to have a point of scarcity—they are in smaller, boutique blocks, in highly desirable locations, perhaps with unique views or features that cannot be easily replicated. These are the properties that hold their value and have better capital growth prospects.

High-rise is often high-risk. A large supply of similar apartments in the same building or area can suppress price growth for years. If you are considering an apartment, an established property in a smaller block is generally a safer bet.

Tourist accommodation

We are not fans of investments in 'tourist accommodation' either. Think serviced apartments or units in holiday resorts. There is often an over-supply, the capital gain prospects are poor, and the costs are incredibly high.

Consider this real-life example. A client, without getting advice, bought a Gold Coast apartment for $400,000 while on holiday. It seemed a good idea at the time. The rent was strong at $30,000 a year, which looked like it would easily cover the $22,000 in annual interest. The problem was the hidden costs: management fees of $15,000 a year and cleaning costs of $6,000 a year. Throw in rates and water, and the total outgoings ballooned to more than $45,000 a year. The cash shortfall was $15,000 a year.

Years later, the apartment is worth less than what they paid for it. New apartment blocks are always springing up, making older ones less desirable. What's more, holiday renters can treat a property roughly. Holding costs of $15,000 a year meant this family’s own week at the Gold Coast each year was costing them more than $2,000 a day. That’s what we call an expensive holiday.

In summary, tourist accommodation is too risky. 'Owners' are at the mercy of the managers, and there are far better ways to invest your money.

Introduction

In this chapter, we want to discuss some important elements of home ownership from a woman's perspective. It can be challenging to get a completely accurate picture, as it involves gathering data from various sources. But in doing so, a clear pattern emerges. While many women are successful homeowners, single mothers in particular face significant hurdles.

General Overview

The Good News

Let's start with some positive findings. When we look at the first home buyer market, single women are a force to be reckoned with. Recent data consistently shows that single women are more likely to buy their first home than single men. This demonstrates a clear proactivity and desire for the security that property ownership provides.

Furthermore, home ownership rates for women living as part of a couple remain very high, typically around 75-80%, which is on par with their male partners. In terms of gender and property, the main issue isn't about capability or desire, but rather how life events—particularly parenthood and separation—can impact a woman's ability to own a home.

The Financial Landscape for Women

Despite this proactive approach, women still face financial headwinds. According to the Workplace Gender Equality Agency (WGEA), the national gender pay gap for full-time work is currently 13.0%. This gap is even larger when you look at total remuneration, and it's most pronounced in the highest-paying industries.

This income gap contributes directly to a wealth gap. The HILDA (Household, Income and Labour Dynamics in Australia) survey consistently finds that single men have more wealth than single women. A significant part of this is the gender superannuation gap. Due to factors like the pay gap and time taken out of the workforce to care for children, women, on average, retire with significantly less superannuation than men. This not only affects retirement but also reduces the savings that could potentially be used for a home deposit earlier in life.

The Impact of Parenthood and Separation

For many women, the biggest barrier to home ownership arises after having children, especially in the event of a separation. While partnered parents have high rates of ownership (over 75%), the numbers change dramatically for sole parents.

Recent analysis based on the 2021 Census and other survey data reveals a stark picture:

• The home ownership rate for couples with children is approximately 76%.
• The rate for single mothers is drastically lower, at around 35%.
• The rate for single fathers is also lower than for couples, at approximately 45%.

These figures tell a clear story. Becoming a sole parent more than halves a woman's likelihood of owning a home. Given that around 80% of sole-parent households in Australia are led by women, this is a challenge that disproportionately affects mothers.

The reasons are twofold. Firstly, raising children alone is expensive and time-consuming, which limits the hours available for paid work. Secondly, the remaining parent is trying to support a family on a single income, which is often lower than a man's to begin with due to the pay gap. This creates a 'double whammy' that makes saving a deposit and servicing a mortgage incredibly difficult.

Furthermore, studies show that when single mothers do manage to buy a home, they tend to own properties of lower value compared to single fathers, concentrating them in the cheaper end of the market. A single father is significantly more likely to own a home in the top quintile (the most expensive 20% of properties) than a single mother.

Summary of Home Ownership and Women

In summary, we can say the following:

• Women are highly motivated and proactive property buyers.
• However, women earn less than men on average and have less superannuation wealth.
• Couples have high rates of homeownership.
• Upon separation, women are far more likely to become the primary carer for their children.
• Sole parents have much lower rates of home ownership (35% for women, 45% for men).
• Single mothers who do own homes tend to own less valuable properties.

While women generally do well with property, single mothers face a substantial disadvantage. The next section outlines financial planning strategies to help address this.

Strategic Financial Planning Responses

So, what can a person facing this inequality do? All strategies must start from a simple point: the core challenges are typically lower income and the financial burden of raising children. The most effective strategies, therefore, are those that address these two issues.

1. Maximise Government Support
   This is the most important recent development. The Australian Government's Family Home Guarantee is specifically designed to help eligible single parents buy a home. Under this scheme, you may be able to purchase a property with a deposit as small as 2% without having to pay Lenders' Mortgage Insurance (LMI). This can reduce the time it takes to save a deposit by years and is a potential game-changer.
2. Anything Realistic That Increases Income
   We emphasise realism here, particularly given the demands of child care. Once kids have arrived, it's not a simple matter of working more hours. However, options to explore include:
   • Changing jobs to a higher-paying employer or industry.
   • Negotiating a pay rise in your current role.
   • Exploring flexible or remote work that reduces travel time and costs, allowing for more productive work hours.
   • Undertaking study or micro-credentials to qualify for a better-paying job. Online courses have made this more accessible than ever.
   • Starting a small business or 'side hustle' that can be managed around family commitments.
3. Anything Realistic That Decreases Expenses
   Again, the emphasis is on realism, as most costs of child-rearing are unavoidable. However, a thorough review of your budget can often reveal savings. Standard financial planning strategies in debt management, minimising discretionary spending, and ensuring you are receiving all eligible Centrelink benefits can free up cash flow that can be funnelled towards a savings goal.

The journey to home ownership for a single mother can be tough, but with strategic planning and by taking advantage of targeted support, it is by no means impossible.

The family home is more than just a place to live in retirement; it's a significant financial asset. For the average household, the home represents over 40% of their total wealth. What's more, over the last 20 years, residential property has delivered average returns of 9.8% per annum. With many retirements now lasting 25 years or more, the home remains a very important asset long after you stop working.

Financial Planning, Retirement and the Family Home

One of the key benefits of the family home in retirement is that its value is generally exempt from the assets test used to determine your eligibility for the Centrelink Age Pension. This is a major advantage and a key reason why many retirees are reluctant to sell.

This can lead to two very different retirement scenarios. The ideal is being 'asset-rich and cash-rich', where you own your home and have enough superannuation and other investments to fund your lifestyle comfortably. In this world, the home provides tax-advantaged capital growth while your super provides the income.

However, a more common situation is being ‘asset-rich but cash-poor.’ This is where you own your home, which may be worth a great deal, but have limited funds for day-to-day living. For people in this situation, the idea of downsizing—selling their current home and buying another for a lower price—can be very tempting.

In the past, downsizing was often seen as a last resort. Today, thanks to some important government initiatives, it has become a powerful strategic option with significant pros and cons that need to be carefully weighed.

The Downsizing Decision: Pros and Cons

The Case For Downsizing (The Pros)

• Significantly Boost Your Super. This is the biggest change in recent years. The government's downsizer contribution scheme allows eligible individuals (currently aged 55 and over) to contribute up to $300,000 per person ($600,000 for a couple) from the proceeds of selling their home into their superannuation. This is possible even if you would normally be too old or have too much in super to make contributions. It's a powerful way to move capital from your home into the tax-free environment of a retirement income stream.
• Free Up Cash for Your Lifestyle. The original motivation for downsizing is still compelling. Selling a $1.5 million home and buying one for $1 million can free up a substantial sum to fund travel, hobbies, or simply live more comfortably.
• Reduce Maintenance and Bills. A smaller, newer home typically comes with lower running costs, less maintenance, and less physical work in the garden, freeing up both time and money.
• A Home That Better Suits Your Needs. Downsizing allows you to move to a home that is better suited for your later years—perhaps a single-storey property with no steps, closer to family, or with better access to healthcare.

The Risks of Downsizing (The Cons)

• High Transfer Costs. Selling one home and buying another is expensive. Selling a $1.5 million home in Melbourne could cost over $30,000 in agent's fees. Buying a new property for $1 million would attract around $55,000 in stamp duty. Add in legal fees and moving costs, and the total changeover cost could easily approach $90,000. Your 'freed-up' cash is significantly less than you might think.
• Impact on Your Age Pension. This is a critical point. While your family home is exempt from the Centrelink assets test, the cash you free up is not. Even if you use the downsizer rules to contribute that cash to super, the balance in your superannuation account is assessed. Therefore, downsizing can reduce or even eliminate your eligibility for the Age Pension.
• Reduced Future Capital Growth. By moving from a $1.5 million asset to a $1 million one, you are reducing your exposure to the property market. Over a long retirement, this can mean missing out on a significant amount of potential tax-free capital growth.
• Emotional and Social Costs. Leaving a home full of memories can be emotionally difficult. Moving to a new, unfamiliar area can also lead to social isolation, especially if you move away from your established network of friends and family. This can be a particular problem for a surviving spouse.

Alternatives to Downsizing

If the goal is to improve your cash flow in retirement without selling your home, there are several alternatives to consider:

• The Home Equity Access Scheme. Formerly known as the Pension Loans Scheme, this is a flexible reverse mortgage run by the government that allows eligible seniors to receive a voluntary non-taxable loan from Centrelink, secured against their property.
• Private Reverse Mortgages. Commercial lenders also offer products that allow you to borrow against the equity in your home, with the loan typically repaid when you sell the property or from your estate.
• Renting Out a Room. Taking in a housemate or boarder can provide a steady, tax-effective income stream to supplement your retirement funds.
• 'Rent-vesting' in Retirement. You could rent out your family home (which you retain) and then rent a cheaper property for yourself elsewhere. This can generate cash flow, though the net rent would be assessable for income tax and Centrelink purposes. It's a great way to 'try before you buy' if you're considering a sea change or tree change.

Estate Planning and Inter-Generational Planning

The decision to downsize or retain the family home has a substantial impact on your estate. Put simply, the more valuable your home is when you die, the greater the amount that can be distributed to your beneficiaries. Retaining a larger home may also put you in a better position to provide assistance to younger generations, for example, by acting as a guarantor on a child's home loan. This is a key trade-off to consider in your decision.

As financial advisers, we rarely look at a client in isolation. We see people as part of a family, and we know that your financial goals are often intertwined with the wellbeing of your children and grandchildren. Inter-generational financial planning (IFP) treats the family as what it usually is—a single, vertically-integrated economic unit. Most people think across the generations when it comes to their wealth, and so do we.

This is never more true than with the family home. Property accounts for the largest portion of household wealth in Australia, and we are on the cusp of the largest inter-generational wealth transfer in history. Research from the Grattan Institute highlights that older Australians have accumulated vast wealth, primarily through property, which will be passed down in the coming decades. Understanding how the family home fits into this picture is essential.

Inheritances

For most families, the home is the most significant asset that will be passed down. It's important to understand how this happens. Most couples own their home as joint tenants. This means that when one partner dies, their share automatically passes to the surviving partner. The home only becomes part of a person's estate (and therefore governed by their will) upon the death of the last surviving owner.

Provided the home was the deceased's main residence, its transfer to a beneficiary is generally free of Capital Gains Tax (CGT). This makes it a very tax-effective way to pass on wealth.

The Timing of Inheritance

The challenge with inheritances is that they often arrive too late. With Australians living longer than ever, most people don't receive an inheritance until they are in their 50s or 60s. By this stage, they are often past their own peak financial pressures, like raising children and paying off a large mortgage. The inheritance is welcome, but it would have been far more impactful 20 years earlier.

This is why modern inter-generational planning is less about waiting for an inheritance and more about providing assistance to younger generations during your lifetime.

Assisting Younger Generations to Buy a Home

The 'Bank of Mum and Dad' is now a major force in the Australian property market, estimated to be one of the nation's biggest lenders. For many young people, parental help is the only way they can get onto the property ladder. Common ways to assist include:

• Gifting or loaning money for a deposit. This is the most direct method.
• Acting as a guarantor on a loan. This uses the equity in the parents' home to secure the loan for the child, reducing the deposit they need and helping them avoid Lenders' Mortgage Insurance (LMI).
• Buying a property in conjunction with a child. This involves co-ownership and requires a detailed legal agreement.

These strategies allow the next generation to buy a home years earlier, securing a property at today's prices rather than the inflated prices of the future.

The Importance of Written Agreements

While families operate on trust, the law operates on written documents. Any financial assistance provided to children should be formally documented. Is it a gift or a loan? If it's a loan, what are the repayment terms?

A formal Loan Agreement is crucial. It clarifies expectations and, importantly, can protect the funds in the event of a child's relationship breakdown. Without an agreement, money intended as a loan to your child could be treated as a gift to the couple and divided up in a family law settlement. A verbal agreement is notoriously difficult to prove. Being clear and formal from the start protects everyone involved.

Using Superannuation to Help Buy a First Home

Since a home is bought with after-tax dollars, using a low-tax environment to save for a deposit is a highly effective strategy.

The First Home Super Saver (FHSS) Scheme

For the younger generation, this should be the first port of call. The FHSS scheme allows individuals to make voluntary contributions to their superannuation (up to $15,000 per year, and $50,000 in total) to save for their first home. These contributions are taxed at just 15% instead of their marginal tax rate. When they are ready to buy, they can withdraw these contributions, along with the associated earnings. The FHSS scheme is the government's purpose-built tool to help young people save a deposit faster.

A Strategy for Parents

Parents can also use their super to help. A client in their early 60s, for example, might be able to make salary sacrifice contributions to their own super fund, take advantage of the low 15% tax rate, and then withdraw the funds tax-free after they turn 65 to gift to a child. This can be a powerful way to boost a child's deposit, especially if the child has already maximised their own FHSS scheme. This is a more complex strategy that requires careful planning around contribution caps.

The key takeaway is that the superannuation system offers significant advantages for accumulating a home deposit when used strategically across the generations.

The family home is central to the financial identity of most Australians. This chapter provides a snapshot of the key facts and figures that shape the property market today, summarising many of the themes we have discussed throughout this ebook.

The Big Picture: A Nation of Homeowners

Australia remains a nation of homeowners, but the way we own our homes is changing. According to the 2021 ABS Census:

• 67% of Australian households own the home they live in.
• This is comprised of 32% who own their home outright (with no mortgage) and 35% who are currently paying off a mortgage.

While the 67% headline figure has only fallen slightly from the ~70% seen in previous decades, the makeup has shifted significantly. The proportion of households owning their home outright has steadily declined, while the proportion with a mortgage has risen. This reflects that people are buying later in life and carrying their home loans for longer.

A Generational Divide

The most significant trend in home ownership is the growing divide between generations. The likelihood of owning a home is now heavily dependent on your age. Analysis of the 2021 Census data shows a stark contrast:

• Among households led by a person aged 65 or over, the ownership rate is over 80%.
• For households led by a person aged 25 to 34, the ownership rate is around 40%.

This generational gap has widened considerably over the last few decades. Younger Australians are finding it takes much longer to gain a foothold in the property market than it did for their parents and grandparents.

The Affordability Challenge

The primary reason for this generational divide is affordability, which has reached crisis levels in recent years. This challenge has three main components:

1. High Property Prices: House prices, particularly in the major capital cities, have significantly outpaced wage growth for two decades. The national house price-to-income ratio now sits at a record high, meaning property has never been more expensive relative to average earnings.
2. The Deposit Hurdle: With high prices comes the need for a larger deposit. Recent studies estimate that it now takes an average Australian couple over 10 years to save a 20% deposit for a standard house. This is a massive barrier to entry.
3. High Servicing Costs: For much of the 2010s, record-low interest rates helped to offset the impact of high prices. That has now changed. We are in an environment of higher interest rates, creating a painful "double bind" for new buyers: record-high prices combined with much higher mortgage repayments. Data from the Reserve Bank of Australia shows that mortgage payments as a share of household disposable income are now at their highest level on record.

The Rental Market Squeeze

The challenges in the ownership market are mirrored in the rental market. In the years following the pandemic, Australia has experienced a severe rental crisis, characterised by:

• Record-low vacancy rates, often below 1% in major cities.
• Rapidly rising rents, far outstripping inflation and wage growth.

This situation has added another dimension to the "buy vs. rent" debate. While buying is expensive and difficult, the alternative of renting has become increasingly insecure and costly, adding a powerful "push" factor for many to pursue ownership despite the hurdles.

The Long-Term Drivers

Despite the cyclical challenges of affordability and interest rates, the long-term drivers of the Australian property market remain powerful.

• Population Growth: Australia has one of the fastest-growing populations in the developed world, driven largely by immigration. The government's Centre for Population projects that our population will continue to grow strongly, particularly in the major capital cities. This provides a constant and enduring source of underlying demand for housing.
• A Resilient Economy: Australia's economy has proven to be stable and resilient over the long term, creating a secure environment for property investment.
• A Cultural Belief in Property: Owning a home remains a core aspiration for most Australians. This deep-seated cultural preference ensures there is always a strong desire to buy, which underpins market sentiment.

These factors help explain why, despite periods of price falls and affordability challenges, the Australian property market has consistently trended upwards over the very long term.