How to help your children buy property

Housing affordability is the current topic of conversation at dinner tables across Australia.

And for families with Gen Y children, in particular, it's probably a discussion based around how they'll struggle to ever buy their own home.

There's no denying it has become a lot harder to get a start on the property ladder – and the main hurdle is saving the necessary deposit.

But parents have been helping their children buy properties for generations and many are keen to keep doing so.

So what options are out there to help your children into their first property?

Guarantor loans

One of the most common ways that parents help their children is by agreeing to a guarantor loan. 

A guarantor loan is a loan product that offers up some of their equity to their child or children to assist with the deposit.

For example, perhaps your daughter could only save $30,000 but needs $60,000 to qualify for a home loan.

As a parent, you could offer the additional $30,000 as cash or by the equity in your own property to make up the difference, which can make a big difference to Lenders' Mortgage Insurance, especially.

It's important to recognise, however, that while you may not have ownership rights over the property, you may be wholly and severally responsible for the entire loan if your daughter or son defaults.

That's why if you're considering this option, you should access expert advice before proceeding which could limit your exposure.

A financial gift

As a parent, we all want our children to have good lives and to be successful if that's what they desire to do.

But does that mindset extend to giving them a financial gift to buy a property?

In my opinion, it really is a personal decision and will depend on factors such as your child's capability to manage a home loan.

If your son or daughter has been spending every cent that they've earned for years, which is why they haven't saved a property deposit, is it a good idea to just give them a handout?

Will they have the necessary financial discipline and know-how to not default on their mortgage repayments?

Perhaps a better idea could be to suggest a financial gift that matches their savings.

So, if they knuckle down and save $25,000, then you will tip in an equal amount to bump it up to $50,000.

That way, your child will learn how to save and you will be more confident that they're not taking on more than they can financially handle.

Better still may be to loan them the money to protect it from unintended persons who could claim part of the assets.

It's natural for parents to want to financially help their children.

And these days many of us want to do it while we're on the top of the ground and not underneath it!

But before you decide on a strategy to help your children buy property, you must ensure you have accessed expert advice from a qualified wealth strategist.

Tips: While it's always a beautiful thing to do, financially helping your children needs to be well-thought-out and well-managed.

That way, it reduces the chance of any ugly fallouts which could totally undo your original good intentions.

And we all want a harmonious and happy family at the end of the day, don't we?

Disclaimer

The article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entities, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives. 

About Ken Raiss Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles