28 Aug 2017
Increasing house prices are good news for property owners but can be a bit of a hurdle for people trying to get into the market.
If, like many of our clients, your goal is to help your children buy a home, there are a few ways you can help. Perhaps some of the tips below might give you an idea or two to discuss with your adviser.
1. Start with the right emotional support.
Supporting your children so they’re emotionally prepared for buying a property will help them make wise decisions. Some ways to do this are:
- encourage good money habits
- educate them around what’s involved in buying a property
- be realistic about what areas they can afford
- help them with their savings by letting them stay in the family home a little longer
- help them plan ahead by encouraging them to speak with a financial adviser
2. Using your home as equity
Research from The Australian Housing and Urban Research Institute project suggests that the family home acts more or less like a savings account for many Australians. This can be done by borrowing against the built up equity of the family home (if it’s been paid off and is growing in value). The money can then be offered to your children as a deposit.
However, bear in mind, if you receive Centrelink payments (particularly if you’re over 60) you’ll need to consider that a gift of this kind may impact your benefits.
3. Being a guarantor for your child
Some lenders allow parents to provide security (a guarantee) to help their children qualify for a home loan. However, you should know that if your child fails to repay the debt your home could be put at risk—so think about this option carefully.
4. Being a joint borrower
If you’re able to make more of a commitment you may want to sign as joint borrower on a home loan. This option isn’t for everyone because although you’d technically own only half of the property you’d have full financial responsibility if your child didn’t pay their part. It’s a big commitment and you’d need to understand all the risks and get the right advice.
5. Gifting property
When it comes to gifting property as a way of helping your children, there are several options. You can provide money for a deposit or a part-pay loan, but be aware that this could impact your Centrelink benefits. You could also buy a property in your child’s name however it’s a complex topic that we recommend you receive specialist advice on.
6. Using SMSF to buy a property
It’s possible to use SMSF to buy a property, but the investment return from the property must be solely for investing in your superannuation. This means your children can’t live in the premises.
We recommend that you speak with a financial adviser to help you decide if buying property through your super fund is right for you.
While you obviously want the best for your children, you need to consider your own circumstances before making any decisions. It’s important to think as far ahead as possible seek financial and legal advice, so you fully understand the risks and benefits before helping your children
At the end of the day, whether you can afford to financially support your children or not, one of the greatest practical gifts you can offer is to help them develop sound money habits and be prepared to buy.