Barefoot Investor Scott Pape explains why parents shouldn’t be a loan guarantor for their children 💥👩💥

A bestselling finance author is urging parents to be wary of acting as a guarantor for their adult children when they buy a home.

Scott Pape, better known as the Barefoot Investor, said family relations would be strained if a parent was held financially responsible for a loan their son or daughter couldn’t pay off.

‘It can cause a rift in the family,’ he said in a News Corp column.

‘I know you think that’ll never happen, but what if your princess’s prince turns into a frog and leaps off with half your deposit? Ribbit!’

A bestselling finance author is urging parents to be wary of acting as a guarantor for their adult children when they buy a home. Scott Pape, better known as the Barefoot Investor, said family relations would be strained if a parent was held financially responsible for a loan their son or daughter couldn’t pay

Pape said parents struggling to pay off their own debt were in no position to be legally responsible for their offspring.

‘If you’re struggling or still have outstanding debt yourself, you’d be mad to go guarantor for anyone,’ he said.

‘As they say in the airline safety demonstration, always fit your own oxygen mask first.’

Even when parents aren’t going guarantor, they are often stumping up to help their children fund a 20 per cent mortgage deposit.

Parents are giving an average of $89,000 to their children so they can buy property, with Digital Finance Analytics calculating the bank of mum and dad is worth $34billion a year.

Sydney public relations account manager Keiran Mannion, 25, saved an impressive $88,000 for a mortgage deposit but it wasn’t nearly enough, as record-low interest rates cause home values to surge.

Sydney public relations account manager Keiran Mannion, 25, saved an impressive $88,000 for a mortgage deposit with it wasn't nearly enough, as record-low interest rates cause home values to surge. So she her parents gave her $75,000

Sydney public relations account manager Keiran Mannion, 25, saved an impressive $88,000 for a mortgage deposit with it wasn’t nearly enough, as record-low interest rates cause home values to surge. So she her parents gave her $75,000

Rent league table

CANBERRA: Up 7.3 per cent to $620

SYDNEY: Up 3.2 per cent to $582

DARWIN: Up 21.8 per cent to $548

HOBART: Up 8.8 per cent to $499

BRISBANE: Up 7.3 per cent to $476

PERTH: Up 16.7 per cent to $472

MELBOURNE: Down 1.4 per cent to $444

ADELAIDE: Up 7.2 per cent to $430

Source: CoreLogic annual increase in June 2021

So she her parents gave her $75,000.

The combined amounts from her savings and help from her parents would enable her to buy an $815,000 apartment in Sydney but not a house within 50km of the city centre.

‘In Sydney its incredibly tough to do it yourself otherwise,’ she told news.com.au.

‘If I wasn’t able to have the support of my parents I definitely wouldn’t have been able to purchase in Sydney and I would have had to look further afield.’

During the first six months of 2021, Sydney’s median house price surged by 18.5 per cent to $1.224million, CoreLogic data showed, putting real estate values beyond the reach of a young person buying by themselves unless they were a high-income earner.

Those putting off getting a home loan are also facing difficulties with national rents surging by 6.6 per cent in the year to June to a mid-point level of $476, the fastest annual increase since January 2009.

Capital city rents climbed by 5 per cent to $492 as regional rents soared by 11.3 per cent to $441 over the year.

Canberra was the most expensive place to rent, with median rent of $620, marking an annual rise of 7.3 per cent.

Melbourne was the only capital city where rents fell, with the 1.4 per cent annual decline making its weekly leasing cost of $444 the second cheapest after Adelaide’s $430.

For those wishing to buy instead of rent, Australia’s major banks are still offering home mortgage rents of 2 per cent, with the Reserve Bank of Australia indicating it would keep the cash rate on hold at a record-low of 0.1 per cent until 2024.

Kate Colvin, a spokeswoman for social housing advocacy group Everybody’s Home, said the rent increases were a troubling sign for Australians living in housing stress or being on the verge of homelessness.

‘While rents have increased across the board, wages and welfare payments have not kept up, putting even more pressure on Australians already struggling to access stable housing,’ she said.

Barefoot Investor Scott Pape explains why parents shouldn’t be a loan guarantor for their children

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