What? Help the children buy property? Never!
What with children these days facing high HECS/HELP debts and soaring property prices, some parents are opting to relieve the pressure by helping them buy property.
As a parent, you’re probably now asking yourself… Could I? Would I? Should I help my children buy property?
Malcolm Turnbull stirred a few tempers over this topic last year when he advised wealthy parents to “shell out” and buy their children houses. His comments weren’t exactly met with enthusiasm with some considering them to be out of touch and insensitive.
But the truth is, while our housing market is cooling in many areas, first home ownership is still a distant dream for many young Australians. Making the decision to help them out is personal and depends on many things including your relationship with your children, your finances and your approach to parenting.
If it is something you want to explore further, here are some strategies to consider:
Let the children live at home longer
We get it. Some of you (granted not all) are counting the days until your children move out taking their squalor, expenses and dramas with them. But as you know deep down inside, living at home longer gives your children the chance to save. And if you’re shaking your head because you don’t trust them to manage their money, try a saving scheme like charging them rent and setting it aside for them until there’s enough there for a deposit.
Explore government assistance
Before you go dishing out your own cash, are you and your children aware of current government incentives?
First homeowner grants are available in many states to those who qualify. And in the latest budget, the government introduced a few initiatives to help make housing more affordable, including the First Home Super Savers Scheme.
The idea here is that first homebuyers can apply to withdraw voluntary super contributions for a deposit on a home. While you may be hesitant about your children delving into their precious super funds, for many people property ends up being their most valuable long-term asset. So, definitely an option worth investigating.
Gift their deposit
What? MORE giveaways… The thing is, even while living at home it’s not easy for children these days to save enough for a deposit. And without one, they’re unlikely to get a mortgage. Thanks to riskier conditions, banks aren’t so keen about lending more than 80% of the value of a property.
So if you can afford to cover their deposit, it may be their only way of accessing the property market.
Become their guarantor
So gifting the deposit isn’t an option – either because it’s not financially viable, your children don’t deserve it, or you just don’t want to. How about using the equity in your own home to act as guarantor for their loan?
Well that depends on your children and how financially responsible they are…
As guarantor it means you’re accountable to pay back all or part of the loan if your children default on their repayments – along with any additional fees, charges and interest.
Just think, all those years of hard-earned savings gone in a blink.
One option is to act as guarantor over just part of the loan. This way, you reduce your risk while helping your children get into the property market and avoiding hefty interest fees or LMI (lender’s mortgage insurance) because they don’t have an adequate deposit.
Opt in as a co-owner
Co-ownership gives your children a means into the property market while you get the benefits of investing in another property.
But as we all know, these types of arrangements can quickly turn sour – even amongst family.
Always have a co-ownership agreement drawn up before diving into such an arrangement. What happens when your children decide to sell? They default on their loan repayments? Or you want your money back?
We could go on…
A co-ownership agreement will make the transaction official while providing the necessary boundaries to protect your investment (and your relationship with your children).
Downsize to free-up funds
The family home can all of a sudden feel too big, empty and overwhelming when the children move out. By downsizing, you can free-up equity and use a portion as a deposit for your children to buy a home.
Of course, this isn’t the best option if you’re relying on the equity in your home to fund your retirement. But if you have an alternative super scheme and the timing suits, it may be an option worth considering.
Subdivide to free-up funds
If you’re sitting on a bit of land, another strategy is to subdivide and either sell or develop the spare land allocating some of the profit to help your children get into the property market.
If this is an option for you, firstly investigate with your local council because many zones have subdivision constraints such as minimum land-size requirements.
In a nutshell…
Whether your children deserve it or not, it’s natural to want to help them out financially. That doesn’t mean it’s always possible. Make sure you get advice from a qualified financial advisor or wealth strategist before making any decisions.
Harmony is key here.
No financial help is worth it when complications arise and things turn sour. All your good intentions unravelled in a blink.
Let’s get the discussion going! Should parents help their children get into the property market?
This article is general information only and is intended as educational material. REALas nor its associated or related entitles, directors, officers or employees intend this material to be taken as advice either actual or implied. You shouldn’t act on any of the above without seeking qualified advice, which takes your individual circumstances into account.