How can I help my kids get onto the property ladder?
With one third of young Australians taking more than five years to save for a deposit on their first home1, there are plenty of ways you can help your kids get into the property market sooner.
Non-financial ways to help:
Teaching your children things like how to budget and save, how interest rates work, the consequences of unsustainable debt and the benefits of an emergency fund could go a long way.
Suggest your kids look into their credit record
A tarnished credit report could affect your children’s ability to get approval on a loan.
Let them live under your roof while they save
Due to factors such as the increased cost of living and housing affordability issues2, nearly one in four people aged 20 to 34 receive financial support by living at home.3
Get them up to speed with the real cost of buying property
This may involve government fees, insurance and interest charges.
Your kids could also save a significant amount of money over the long term by understanding types of home loans, comparison rates and key considerations should they buy an investment property.
Help them explore government assistance options
The First Home Owner Grant is a national scheme funded by Australian states and territories. If your children are unsure about eligibility, contact your state revenue office.
Financial ways you can help:
Lenders will generally ask for a minimum deposit of between 10% and 20%. Some lenders may offer your children finance without this if a family member pays the deposit, signs as guarantor or buys the property as a co-owner or joint borrower. Here are some details on these options:
Gifting the deposit
If you can afford it, gifting a deposit can be a great start. A good deposit will reduce the amount your child needs to borrow and the interest paid over the life of their loan.
Bear in mind, if you happen to receive Centrelink payments, you’ll need to consider that a gift of this nature could impact your benefits.4
Signing as a guarantor
Some lenders allow you to use the equity in your home as additional security for a loan taken out by your child. It’s essentially a promise by you to the lender that your child will abide by their responsibilities as a borrower. And, if they don’t or are unable to, that you will repay the loan for them.
Going guarantor requires a lot of thought because if things don’t go to plan, the loan becomes your responsibility and you may have to sell your own home in the process to clear your child’s debt.5
Going in as a joint borrower
If you sign as a joint borrower, you’re equally responsible for the home loan and must repay the entire debt with the principal borrower—your child—whether they default or not.
This is also a big commitment and you’ll need to understand the risks and get the right advice.
Next steps
If you’re going to give money to your children, it may be a good idea to discuss early on how and when the money will be provided, and when and if you want the money back.
Likewise, if you’re providing non-financial support, make it clear on what terms support will be provided.
Having an agreement in place can go a long way to ensuring everyone is on the same page and you may even consider writing down what you’ve agreed to so there are ground rules in place.
Meanwhile, if the support you plan to provide will be financial, please contact us on
Ph: 02 8539 7999 Ext 2 to discuss the risks, benefits and any tax implications.
Source: AMP
1 https://www.finder.com.au/press-release-nov-2016-one-in-three-first-home-buyers-stuck-saving-for-a-deposit-for-over-five-years
2 http://mccrindle.com.au/the-mccrindle-blog/q-and-a
3 http://www.mccrindle.com.au/researchsummaries/generation-y-casuals-downagers-boomerang-kids.pdf
4 https://www.humanservices.gov.au/customer/enablers/gifting
5 https://www.amp.com.au/personal/news-education/education/your-questions-answered/can-i-act-as-the-guarantor-on-my-childs-home-loan
Important:
This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
