27 Jun 2016
How to Help Your Children into the Property Market
The differences between millennials and baby boomers are common topics for debate today – most notably, the difference between the two when it comes to entering the property market as first-time buyers.
The common assessment is that baby boomers were able to afford property on standard full-time wages rather easily, while millennials today struggle to do the same. This results from a number of economic changes over the past few decades such as skyrocketing property prices and fewer available jobs.
As a way to help their children overcome these difficulties and enter the property market, Australian parents are finding ways to help their children get in. Easier said than done for some. Many parents struggle to keep a roof above their own head.
But if you’re fortunate enough to be in a position to help your children acquire their first property, here are a few ways you might go about it:
Cash gifts
The most obvious way to help your struggling son or daughter get a foot in the door is to assist with their home loan and/or other finances directly.
Some parents donate their child’s first deposit so that they can make a start. But the important thing to consider is whether or not they’re able to use that money responsibly.
Family Pledge
If you haven’t got cash to fork out, but you have a substantial level of trust for your son or daughter, you might consider offering your own property as collateral on their home loan.
This would allow them to avoid the journey of saving for a deposit. But remember, the level of equity required for the property to be eligible varies from lender to lender.
Just keep in mind, if your son or daughter defaults on their loan, you’ll be responsible as a guarantor.
Family financial agreement
Finally, if neither of the above options is for you, you can give your child a loan under a family financial agreement.
You’d need to get a solicitor involved, but essentially, you’d loan your child enough money to make a start and set out a legal contract binding them to a payment plan.
It’s not the most common method, but First Home Buyers Australia Co-Founder Daniel Cohen made an interesting point:
“If the kids never pay [their parents] back the $20,000, they’re only really $20,000 out of pocket, rather than if the banks come after them for a whole $400,000 loan.”
Involving solicitors in family matters is never pleasant, but it could be the most pragmatic option available to you.
Mortgage House
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.