With so much media about how the Australian dream of property ownership seems increasingly out of reach for many young Australians, understanding how you can help your children buy their first property is a positive, proactive step many established home-owners can take to help the next generation.
It’s not all doom and gloom, luckily. In fact, by looking at different types of mortgages that allow you to leverage from your own home to help your children, you can support your family – without risking your own property.
The thing most first-home buyers need help with is a deposit. And in today’s high-priced property market, with deposits becoming out of reach for many, parents can take a positive step to help.
To help your children save for their first home deposit, consider these ideas:
- Offering a cash gift or loan
- Save for them from early childhood
- Act as their guarantor
- Explore the idea of a joint venture
- Shop around for innovative mortgage products that might suit your situation
Cash gifts:
If you have available funds you can afford to share, consider a cash gift. Think about whether you need to get this back and if you need it for something of your own within a set time-frame. If the money matters to you, this may not be a great option but if you believe your children will repay this when they say they will, or if you have the flexibility to extend a repayment period from them to you, this can be worthwhile – and very helpful. Be aware that even your large and generous cash gift may not be enough to help them across the line with a mortgage. If they need to show genuine savings records, even a lump sum from another person will not help.
If your children are very young, open up a term deposit and commit to regular deposits.
When they are old enough to understand, encourage them to add to the account with pocket money, birthday money, or any income from part-time work.
Creating positive savings habits will help them save for the amount they need but it will also teach them great budgeting skills to ensure their approach to repaying their debt is taken seriously.
Go Guarantor
Going as a guarantor means that your home has a mortgage taken out on it by the financial lender to your child. Your role as guarantor is to act as security for the loan.
For this to work, you need to have available equity in your property but, if it does work, your child is able to purchase without a cash deposit and, potentially, they can access a larger amount to borrow.
For first-home buyers, LMI can also, potentially, be reduced – something that can save thousands of dollars. You can elect to be guarantor for a certain amount of the loan only. Be sure to seek professional legal advice and talk to your accountant and mortgage broker to see what’s right for you.
Be aware that, if your child defaults on repayments, your property can be at risk. Think carefully before agreeing.
Joint venture
Another way for parents and their children to work together is to go into a joint purchase.
On their own, your child might not be able to afford the property but with you as a partner in the deal, you can both own a stake in the home – and take a share of the financial responsibility to repay the debt. When the time is right, you can then give them the opportunity to buy you out of the deal, or you could agree to put the property on the market and use any profits to let them buy elsewhere solely in their own name.
New mortgage products
There are many products available that might suit your unique situation so talk to your mortgage broker to help you understand all the options available that can allow you to give your children the financial help you believe they need to get their foot in the property door.
Binding Financial Agreements
Just as many married couples or those in a de facto relationship take out binding financial agreements to protect each other financially it is recommended that any decision to financially assist your child or children into the property market is done with the help of quality legal advice.
Parents can agree to officially loan children defined amounts of money and draft a legal contract that outlines their preferred method of repayment – including a deadline.
Home Sweet Home
And for those parents who might not have the financial means to help their children access a deposit for a property purchase, there are still positive things you can do to assist.
If you have the space (and the nerve) letting them live with you as adults may be a great financial service – enabling them to save money they would otherwise be spending on rent and utilities. Just talk to them about how they can make the arrangement work best for everyone – giving you some money to cover the extra expenses of putting a roof over their head and ensuring the savings they are making are being actively managed for the highest possible investment benefits that will help them speed their way to their very own property.
Remember – for accurate advice about what your adult child needs as a minimum deposit to get their foot into the property market, talk to an experienced mortgage broker to understand the world of home loans and the part you can play in their home-ownership goals.
If you have any questions about your finances, either personal or business, please do not hesitate to contact Lending Specialist on (03) 8805-1800 or email barry@lendingspecialists.com.au
