Many families want to support each other. Parents often ask us how they can help children buy their first property. With the housing market continually rising, many children will face affordability challenges.
Some parents look to buy properties to gift to their children in the future, but this is not always feasible, for instance if you have three children. Many are also not quite fortunate to have the money to do so.
Here we discuss three ways to help your children buy their first property:
1. Help pay the property deposit
The number one issue for first home buyers is saving for a deposit. Although many home buyers enter the workforce with good paying jobs, they struggle to save enough money to pay a deposit. It’s also common that a first home buyer saves well and think they’ve finally saved enough, only for the property market to move higher than their budget.
Providing your children with a cash gift will help them immensely. It can also be very difficult to find the funds to help your children buy their first property. If you don’t have cash available, perhaps your home has equity. Drawing equity from your home means you will need to borrow against it. Some parents tell their children to help cover the loan payments, while others may ask them to pay it back entirely. The choice is yours.
Using your home certainly comes with risk. It may also restrict you in making your own personal decisions in the future. Obtaining advice is critical. Speaking with a financial planner or solicitor in advance is important. They can outline all of the terms and conditions for you to make an informed decision.
2. Buy a property in a family trust
As mentioned earlier, many first home buyers have good employment income to service a loan, however they lack the property deposit. Another way to help your children buy their first property, is to consider setting up a family trust where a number of family members can have a share of the ownership. The trust can also borrow funds to invest. The parents provide the deposit, while the children have the cash flow to service the loan.
This is an interesting concept that provides asset protection too. A family discussion up-front can set the ground rules to ownership percentages, how long they want to invest with each other etc, but it does require advice. We recommend consulting your accountant who can explain the reporting and tax requirements to maintaining a trust.
If your child is a first home buyer, owning a property in a trust may effect them receiving an government grants or entitlement. Obtaining advice is also essential. Speaking with a financial planner or solicitor in advance is important. They can outline all of the terms and conditions for you to make an informed decision.
3. Become a guarantor
Being a guarantor is another way of helping your children buy their first property. It may help your child obtain a loan or mortgage. However being a guarantor, means you “guarantee” someone else’s loan or mortgage by promising to repay the loan if they can’t afford to. This may also mean the nominated bank you have chosen will ask to have your house and child’s home up for security.
This can be a helpful strategy, but it does pose a risk. As a parent, you also have your own living expenses and possibly a mortgage to manage. You must be confident that your child is in a position to pay the loan in full and on time. This can risk your own cash flow, livelihood and home.
It has its benefits but we recommend obtaining advice from a solicitor and mortgage broker in advnace.
Not all strategies suit everyone
There are many strategies that can boost someone’s financial circumstances. The above strategies are to help you think outside the box. Helping your children buy their first property is what every parent wants, but a duty of care for yourselves is needed. Not all strategies suit everyone, but getting advice does. If you want to help your children buy their first home, please feel free to contact us. We can source the right property within their budget and provide peace of mind As we guide them towards owning their first property.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more please contact us. We welcome the opportunity to assist you.
June 2020
