You’ve probably helped your kids countless times over the years – and what kind of parent wouldn’t? In today’s economic climate, young people or ‘Gen Y’ (those born around 1982 to 2000) are finding it harder to get into the property market. With Sydney’s median house price hovering around $1 million, a 20 per cent deposit is growing further out of reach for most Australians, not just Gen Y. So how can you help your kids get on the property ladder? As always, it depends on your approach.
Be a beacon of financial advice
You can teach your near-adult or adult children about good finance through leading by example. You should encourage them to look at their own finances and credit histories. This will give them a broad understanding of their own financial position.
You should also share with them the real cost of buying property, such as government stamp duty, legal fees, conveyancing and other fees from your real-world experiences. You should also teach them about the difference between fixed & variable interest rates, for example. Show them how lenders market certain rates to entice customers, such as advertising base rates vs. comparison rates, which include most fees.
If you’re a more recent first homebuyer, teach them the steps involved with applying for the First Home Owner Grant.
Hotel de Mum and Dad
One of the time-honoured ways of helping kids on to the property ladder is letting them stay at the family home, bill and rent-free. Of course, this cramps their style as much as it does yours. Even so, nearly one in four young Aussies lives at home longer for financial reasons. It does give them more room to save for a deposit faster, though.
The Bank of Mum and Dad
Helping your children with their finances directly is an option too, and there are a few ways to go about it.
The first option is going in as a joint borrower. That means co-owning a house together with your child and helping them pay it off. This also saddles you with an additional debt if you already have a mortgage, and leaves you on the hook if your child can’t keep up repayments.
Another, safer option is co-signing a loan as a guarantor. An additional security gives lenders peace of mind. However, if your child defaults, it also leaves you vulnerable to clearing the debt.
The safest option by far is giving your child part or all of the deposit for their home as a gift. A better deposit will help them pay off the loan quicker and avoid paying extra for Lenders Mortgage Insurance. Be wary: large monetary gifts can affect Centrelink payments.
Image: Tony Gough, Herald Sun
As always, you should seek advice from a financial professional before making any major financial decision.
For more useful advice for first home buyers (FHB) take a read of the pros and cons of rentvesting, a FHB guide to the extra costs of buying a home, how to save for a deposit as efficiently as possible and advice for buying your first home.