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How to help your children with buying property


With property prices rising at a record rate, the ‘bank of mum and dad’ is playing a bigger role than ever as many parents feel pressure to assist their children in buying a home.


For many Australians, home ownership is not just seen as the great Australian dream, but it also represents financial security and an important step in adulthood.


However, rapidly escalating prices, particularly in highly desirable capital cities such as Sydney and Melbourne, has put that first step on to the property ladder out of reach for many young people. This in turn has led to many children turning to their parents for assistance.


According to the AFR, parental contributions are averaging more than $89,000, an increase of nearly 20 per cent in the past 12 months. In fact, the ‘bank of mum and dad’ has about $34 billion in loans, making it the nation’s ninth-largest residential mortgage lender and bigger than HSBC, AMP, and Bank of Queensland, according to data from Digital Finance Analytics.


For parents who want to help their children into home ownership, there are several strategies and pathways to consider.


Contributing to a deposit


Most lenders recommend prospective home buyers have 20% of their loan available as a deposit and contributing to this deposit is often what first comes to mind when parents think of how they can help their children, as scraping together a deposit is generally considered the most difficult step in buying a first home.


If you are contributing a cash amount, make sure you have clear discussions with your children about any expectations related to your contribution – for instance, if you are making the contribution in lieu of leaving them money in your will, make this very clear and don’t hesitate to put it in writing, especially if you are doing this for one child but not others.


Acting as guarantor


A guarantor home loan is when someone, in this case a parent, offers up part of their home equity as security to top up the buyer’s cash deposit.


It means the buyer only needs a small deposit or sometimes none and avoids paying costly lender’s mortgage insurance (LMI).


It’s crucial that you only agree to act as guarantor if you have full confidence in your child’s ability to make their loan repayments. If they default, you will be liable, and your own home may be at risk.


Providing a loan


Whether through an official loan provider or a private agreement between parent and child, you may be able to loan your children the money they need to buy a home or for their deposit.


Keep in mind that this assumes they will be able to make their official home repayments as well as paying back the initial loan, and it is important to have honest discussions that clarify how they will manage this, and a timeframe for repayment.


Always put your well-being first


It may sound selfish and like it goes against what we’re told as parents, but it is crucial that older Australians put their own financial security first.


If you are simply not able to assist your child, do not feel pressured to put your financial wellbeing at risk to help them, especially if you have doubts about their ability to manage the repayments and responsibility of a home loan.


Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643.


The information contained herein is of a general nature only and does not constitute advice. You should not act on any information without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances. The views expressed here are not ours. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties who are not related to us. These links are provided for convenience only and do not represent any endorsement or approval by us.


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