Rising property prices have made it harder for young people to get into the property market than it was for previous generations. Here’s how you can lend your kids a helping hand – without necessarily having to put up all the cash yourself.
Recent statistics show that just over half of 20–24 year old’s and 21% of 25–29 year old’s in Australia still live at home.1 And with Australian property prices now among the highest in the world, it’s not surprising so many young people feel that home ownership is out of their reach.2
But there’s no need for your children to despair. With a little assistance from you, they may still be able to buy a place to call their own.
Here are some tested strategies to help get your kids into their first home.
If your kids are still little, consider opening a high-interest savings account, managed fund or investment bond for them as soon as possible. Over time, regular deposits and investment
returns can really add up – giving your kids a head start with their property savings.
For example, starting with $1,000 and contributing around $400 a month for 15 years, you could give them valuable gift of approximately $90,000 by the time they’re ready to buy.3
Help with the deposit
Coming up with a deposit is one of the biggest obstacles for potential new homeowners. Ideally, they’ll want a deposit of at least 20% of the home’s total value – otherwise, costly Lenders Mortgage Insurance usually applies.
If you have the cash available, you may want to lend your child some or all of the deposit amount. This can help get them into their own home sooner – potentially before house prices rise any further.
But before you do, work out a regular repayment plan that won’t leave your kids overstretched while they’re starting out with their mortgage.
Act as a guarantor
If you have equity in your own home, you may be able to act as a guarantor on your child’s loan – by using your own home as security. This can be helpful in cases where your child doesn’t have enough of a deposit for the loan and would otherwise need Lenders Mortgage Insurance.
But be careful: if your child is unable to make the repayments, you’ll be liable for the loan. And in the worst case, this could mean having to sell your own home to pay for it. You should therefore only choose this option if you’re confident your child will be able to keep up with their mortgage payments. It’s important that you both clearly understand the consequences if they default.
Become a joint owner
Another option is to become a joint owner of your child’s property. But again, do your homework before you sign on the dotted line; if your child misses a repayment, you could be liable for it.
What’s more, even though you’re sharing the mortgage, its total value will be on your credit file. This could make it harder if you want to borrow more money in the future – maybe for renovations, a new car or an investment property of your own.
Share your experience
Savers are made, not born. So, it’s never too early to start teaching your kids good financial habits.
When they’re young, show them how to budget their pocket money and save for their goals. As they get older, introduce them to the many online calculators and tools that can help them work out their expenses, create a savings plan and slash interest fees by paying debts faster.
You can also help your kids explore government assistance options like the First Home Owners Grant.
Best of all, share your own experiences on saving, budgeting and paying loans – including any valuable lessons you’ve learned through trial and error.
Talk to someone who understands
Remember, your financial adviser has the skills and experience to guide you. They can look at your current financial position and find the best way for you to help your kids – without sacrificing your own lifestyle goals.
1 Australian Bureau of Statistics, 2015. Household and Family Projections, Australia, 2011 to 2036, 3236.0.
2 Demographia, 2017. 13th annual Demographia international housing affordability survey.
3 Calculated using MoneySmart’s Savings Goals Calculator, assuming a 3% interest rate. No adjustment has been made for inflation or income tax.
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