Helping Your Kids Buy a Home 

With rising property costs in Australia, many parents are helping their adult children buy homes. The ‘Bank of Mum and Dad’ is now one of Australia’s largest mortgage lenders. Here are a few ways parents can assist.

Guarantor Loans
A common way parents help their kids buy a first home is through a guarantor loan, using their own property’s equity to support the deposit.

Being a guarantor is a decision not to be taken lightly though: if your child defaults on repayments, the bank could look to you to repay the loan. If you need to put your own house up as security in order to act as guarantor, you could end up losing your own home to repay your child’s debt.

Consider if your child can repay the loan and if acting as guarantor would strain your finances. Limit your risk by guaranteeing the minimum amount required and seek legal advice first.

Financial Gift
If possible, consider giving your children an early inheritance as a deposit gift. However, ensure you retain enough funds for your future health and financial needs.

Things to think about: can you afford to gift more than one child? Will you have enough money to live on comfortably in retirement? Will your child have the financial discipline to meet their mortgage repayments? It may make more sense to match your child’s own savings with a financial gift.

Cash loan
Helping with a loan for the deposit can kickstart your child’s first home purchase. Be sure to document terms in a loan agreement, including repayment schedule, loan term, and any interest.

Things to think about: if you have other children, will you be able to help them with a loan too? If you’re borrowing from a bank to lend to your child, can you realistically afford it? Many retirees are asset rich and income poor – and the bank will want to know that you can afford to repay your loan.

If you’re still paying off your mortgage, consider the impact of using your equity or increasing your loan.

Co-ownership
Buying a property with your child means you have a share of the property and will be registered on the title of the property. It’s a good way to protect your investment and have a share in the capital gain on the property when it’s sold.

Consider signing a Property Sharing Agreement to clarify payments, residency, and terms for a future sale.

As always, it’s worthwhile seeking sound financial advice when it comes to buying property. If you’d like to sit down with one of our brokers and review your current situation with a view to helping your children onto the property ladder, simply complete this form and a Lending Connections broker in your area will be in touch.