Helping Your Children Buy a Home – Financial, Practical and Emotional Considerations

While interest rates might be lower than ever, breaking into the property market for young first home buyers is still out of reach for many. So, what should you consider if you are thinking about helping your adult children purchase their first home?

By Lynette Murray, Platinum Adviser

Financial considerations

There are a number of options available when it comes to helping out financially, for example you could provide a monetary gift to help with the deposit. One of the risks with this is that depending on the size of the gift, if you plan on receiving the age pension within the next 5 years this might impact your pension entitlements.

Other options could be providing a loan to your child; purchasing the property jointly; or acting as a guarantor by providing your own home or term deposits as security.  A joint purchase and acting as guarantor means that if things don’t work out you will be fully liable for your child’s obligations.

Many banks also offer a Family Pledge or Family Guarantee product that allows you to limit your risk by only guaranteeing the loan up to a stipulated amount.

Practical considerations

There are also a number of practical things you could do to support your child in purchasing a house such as allowing them to stay with you while they save for a deposit. You could also help them navigate the jargon, paperwork and hidden pitfalls by sharing your knowledge and experience of the true costs of purchasing a home as well as the options for Government Assistance.

Emotional considerations

Financial stresses are one of the biggest causes of relationship breakdown. Not only is there a risk to your own financial wellbeing if your relationship with your child breaks down and you have gifted them money, but there is also a risk if your child’s relationship with their partner breaks down. If you have provided a monetary gift to the couple to help them with a house deposit, that gift becomes part of the joint assets of the relationship.

While drawing up a proper loan agreement may be seen as a sign of distrust, what it allows you to do is clearly manage expectations. Where you are providing a loan for one child and not another, it can also go a long way in averting sibling conflict. 

The number of parents who support their children to break into the property market is likely to continue to increase as property prices outstrip wage growth.

Lynette Murray is a Platinum adviser on Adviser Ratings, and founder of ActonAdvice Group, Canberra.

Article by:

Lynette Murray, Acton Financial Planning

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