In the current landscape of Australian house prices, the dream of owning a home, especially in Sydney, seems to be drifting further out of reach for many aspiring first home buyers. For parents looking to support their children through the challenging rise of house prices, it’s time to determine whether this dream is feasible, and if so, at what cost?

The latest data from Canstar paints a stark picture – with a gross income requirement of $270,000 per annum, our children will need considerable financial firepower to contemplate buying a home at the median value of $1.4 million in Sydney.

The bank of mum and dad may again need to be raided, with parents assisting their children not only financially but through initiating conversations about the implications of taking on a significant financial commitment. While the allure of the property market remains, the spending habits of the current demographic, aged between 25 and 45, differ significantly from those of previous generations.

How to have financial conversations with your children

Navigating financial conversations with adult children requires a delicate balance of empathy, guidance, and open communication. While the majority (85%) of Australians strongly believe in the benefits of having conversations about finances with their family unit, 3 in 5 have challenges or concerns that would stop them from speaking openly about finances with them.

As the landscape of housing affordability shifts and the dream of homeownership becomes more challenging, parents find themselves playing a pivotal role not just as potential financial backers but as mentors guiding their children through the complexities of real estate and personal finance.

Here are some tips on fostering effective financial conversations with your adult children:

• Start early and be proactive. Initiate financial discussions well before your children consider entering the property market. Early conversations about budgeting, saving, and investment can lay a solid foundation for understanding financial responsibility. This proactive approach helps in instilling financial literacy and preparedness.

• Create a judgment-free zone. Money can be a sensitive topic, and individuals may harbour insecurities or concerns about their financial situation. Create a judgment-free environment where your children feel comfortable discussing their financial goals, challenges, and aspirations without fear of criticism. Emphasise that these conversations are about collaboration, not judgment.

• Understand their goals and values. Every individual has unique financial goals and values. Understanding what matters most to your children, whether it's homeownership, travel, education, or other priorities, will help tailor the conversation to their specific needs. This insight ensures that the financial advice provided aligns with their personal aspirations.

• Share your experiences. Reflecting on your own financial journey can provide valuable insights and serve as a practical learning experience for your adult children. Share both successes and challenges, discussing how you navigated financial decisions, including buying your first home. Real-life examples can make financial concepts more relatable and less intimidating.

• Discuss the realities of the current market. Given the ever-changing landscape of house prices, interest rates, and economic conditions, it's crucial to provide a realistic perspective on the current market. Share information about trends, potential challenges, and the importance of conducting thorough research before making any significant financial commitments.

• Encourage financial independence. While offering support is commendable, encourage your adult children to develop financial independence. Empower them to make informed decisions by arming them with the knowledge and skills necessary to navigate the complexities of personal finance. This fosters a sense of responsibility and ownership over their financial future.

• Explore alternatives. The traditional path to homeownership may not be the only route. Discuss alternative options, such as exploring different locations, considering smaller properties or apartments, or even renting for a period to accumulate a larger deposit. Exploring various paths allows for flexibility in achieving financial goals.

• Introduce the concept of financial planning. Financial planning can be a valuable resource for adult children navigating the intricacies of major financial decisions. Suggest the idea of seeking professional financial advice, such as engaging with financial planners who can provide personalised guidance based on their specific circumstances.

• Highlight the long-term perspective. Homeownership is a long-term commitment, and the decision to enter the real estate market should be viewed through a strategic lens. Discuss the importance of thinking long-term, considering factors like career plans, family expansion, and potential lifestyle changes that may impact their housing needs.

• Reassure them about the Australian dream. While the path to being first home buyers may seem challenging for your children, reassure them that the Australian dream is not entirely out of reach. Remind them that with careful planning, informed decision-making, and strategic financial management, they can work towards achieving their homeownership goals and overcome rising house prices.

Learn more on how to have conversations about finances in our report, Conversations That Count.

Can your children truly afford the surge in house prices?

While you may look fondly on your own experience of buying your first home, your children may not find themselves feeling the same way. Factor in the cost of living and the latest interest rate rise on top of soaring property prices, and you’ve got a perfect storm for potential homeowners to tackle.

Let's do the math. Using Sydney property prices as an example, if one member of the couple is earning $170,000 a year and the other member of the couple is earning $100,000 a year the net income available to that couple will be about $190,000. The repayments on a loan for the average house price of $1.4 million (assuming a 10% deposit) would be approximately $90,000 per annum. This means around 47% of your net income is going towards mortgage payments, potentially contributing to mortgage stress, which is defined as when your payments are greater than 30% of your pre-tax income.

As financial advisers, we understand the intricacies of these calculations and emphasise the importance of financial conversations to ensure informed decisions. While getting into the real estate market at the median house price seems like the most logical thing to do today, consider what your children may have to give up when making a first home purchase of this magnitude.

Key takeaway

There are many ways to alleviate some of the mortgage stress, whether it be purchasing a home in a different location, starting out in a smaller place or an apartment, or perhaps even house sharing or renting (this can be tough) to save up a greater deposit.

I don't believe that the Australian dream is out of reach, however, it may be a little further away than what it was 20 years ago. Your wealth management adviser, and indeed, any of our financial advisers are more than happy to have a confidential conversation with your children, provide them some financial coaching, and if necessary, some financial advice.

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