Getting your kids into the market

The Sydney property market is tough, but there are a few options to help your kids crack it

For many young people, the property market is a tough nut to crack, so it’s not surprising that more and more parents are helping their children get into the property market. In this article, we’ll share how you can make it easier for your kids to get a foot onto the property ladder.

 

Getting your kids into the property market: Cold hard cash

If you can afford it, giving a financial gift for a deposit can be just the thing your kids need to get into the market. It reduces how much they need to borrow and can save them a lot of money in interest repayments. Gifting a deposit can also save them years of saving and expensive mortgage insurance.

But even if you can afford it, you should always think carefully about such a generous offer. Is your child capable of servicing a mortgage? Why have they struggled to put a deposit together? (Is it because they’ve been spending all of their money?) Does your child have the financial discipline to commit to a mortgage and regular repayments?

 

Getting your kids into the property market: Lending them some cash

There is the option of lending them cash and putting a caveat on the property. This means that, should they choose to sell the home, you’re guaranteed to get your money back. It also limits the tax implications associated with gifting under Australian taxation legislation.

 

Getting your kids into the property market: Going guarantor

Some lenders will let you use the equity in your own home (or investment property) as security for the loan taken out by your child. This means you’re effectively promising to meet the repayment obligations, should your child default on the loan.

This option can mean your son or daughter doesn’t need to save a deposit and may also reduce (or eliminate) the need for lenders mortgage insurance, which can save them a lot of money.

In order to choose this option, though, you’ll need to have a certain level of equity in your property. You’ll also need to get independent advice and be properly warned of the risks that you’re exposed to. While you may have ownership rights over the property, you’re also wholly and severally responsible for the entire loan if your child defaults.

 

Getting your kids into the property market: Consider a joint venture

Buying a property with your child in the form of a partnership can be a great way to help them into the property market without exposing yourself to the same level of risk as the guarantor option.

You can split the property however you like, but a popular way is a 50-50 split with parents covering the deposit, while the child covers the repayments. With this approach there’s also the option to refinance later down the track, with the aim of your child eventually owning the property unencumbered.

But this option might not suit everyone and, like a business partnership, it’s a good idea to get independent advice and put the plan in writing to avoid problems down the road.

 

Getting your kids into the property market: Be a co-borrower

If you decide to become a joint borrower, you’ll be responsible, along with your child, to meet the repayments – whether your child defaults or not. This option is usually not as popular as people don’t want to expose themselves to the risk, and commitment, of regular mortgage repayments.

 

Looking for non-financial ways to help your kids get into the property market?

Maybe you’re not in the position to help your kids financially. Or maybe you want some more time to think about offering financial assistance, but in the meantime you want to offer them some help to get them onto the right track.

One popular way parents can help their kids get onto the property ladder is by letting them live at home for free, or for a heavily reduced rent. This gives your children the opportunity to save for a deposit while they live under your roof.

Another (often overlooked) form of assistance can come in the form of early budgeting lessons. Teaching your child the importance of budgeting and living within their means can go a long way to helping them get control of their finances and keeping a good credit score.

 

Some advice… look before you leap

Before you make the big decision to help your child purchase a property, it’s a good idea to get some quality advice – from both your financial advisor and from your lawyer. They’ll help you stay realistic about what you hope to achieve, while also giving you tailored advice that takes into account your personal circumstances.

A financial advisor and lawyer can also help you answer some important questions, such as:

  • Can you really afford to help your child buy a property?
  • Would such generous assistance end up jeopardising your own retirement, super or Centrelink payments?

Good advice also means you’ll be aware of the risks, while also helping develop a solid plan for you how you and your children will move forward with whatever arrangement you choose.

 

Over to you

Do you think helping your kids get onto the property ladder is a wise move? Have you helped your kids buy their first property or upsize? If so, what were some lessons you’d like to share?

Disclaimer: The information here is provided on a general basis. You’re encouraged to consult with an expert who can consider your individual situation.

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Getting your kids into the market