How To Help Your Child Buy A Property

For many young adults, the dream of owning a home feels increasingly out of reach. Rising property prices, stricter lending rules, and the challenge of saving for a deposit can make the journey to homeownership overwhelming. As a parent, you naturally want to step in and help ease the burden for your children. But even with the best intentions, knowing how to provide that support without putting your own financial wellbeing at risk can be difficult.

Let’s explore the best strategies to help your kids buy a property, along with the pros and cons of each, so you can make an informed decision.

1. Gift The Deposit

One of the most common ways parents help is by gifting all or part of the deposit. This reduces the amount your child needs to borrow and can help them avoid Lenders Mortgage Insurance (LMI) if they reach a 20% deposit.

• Pros: The gift can speed up the process and ease your child’s financial burden because they don’t have to pay it back. It’s also straightforward, with no ongoing financial obligations.

• Cons: Gifting a large sum can reduce your own savings or affect your retirement plans. Additionally, if your child is in a relationship that breaks down, the gift may be considered part of the asset pool in a property settlement.

2. Loan The Deposit

Instead of gifting, you can lend your child money with a formal loan agreement. This allows for flexibility and ensures you are repaid. You can even set favourable terms, such as low or no interest.

• Pros: This provides a formal structure to the financial assistance, ensuring both parties understand the repayment terms. It can also offer legal protection in case your child’s relationship ends.

• Cons: A loan will reduce the amount your child can borrow from the bank, as lenders will count it as a liability. This may affect their overall borrowing capacity.

3. Go Guarantor

By becoming a guarantor, you use the equity in your home as security for your child’s loan. This allows your child to borrow a larger amount or get a better deal, often without needing a large deposit or paying LMI.

• Pros: No cash outlay from you is required, and your child benefits from a better loan deal with fewer upfront costs.

• Cons: If your child defaults, you’re responsible for the portion of the loan you guaranteed. This could result in the lender coming after your assets, potentially putting your home at risk.

4. Co-Ownership

Some parents choose to buy a property with their child, either as joint tenants or tenants-in-common. This means you both own a share of the property, and you may decide to sell your share later, or have your child buy you out over time.

• Pros: You both benefit from potential property appreciation, and your child can get into the property market sooner. It also provides flexibility in terms of ownership structure; for example, you could own a 30% share and your child 70%.

• Cons: Both parties are equally liable for the mortgage, meaning if your child can’t make payments, you’ll have to step in. Additionally, selling your share may trigger capital gains tax, and if you’re listed on the mortgage, you’re also liable for the debt.

5. Match Their Savings

This strategy involves offering to match your child’s savings toward their deposit. For example, if your child saves $20,000, you contribute an equal or greater amount.

• Pros: This incentivises good savings habits, teaches financial responsibility, and helps your child reach their goal more quickly.

• Cons: It requires ongoing monitoring and a clear agreement on the terms. Additionally, depending on how much you match, it could strain your own finances.

6. Provide Rent-Free Living

Allowing your child to live at home rent-free for a period is another way to help them save for a deposit faster. This eliminates a large expense and helps them build savings more quickly.

• Pros: This option has minimal financial risk for you, and your child can save.

• Cons: Household expenses may increase, and it requires discipline on your child’s part to ensure they save the money rather than spend it on non-essential items.

7. Set Up A Family Trust

You can use a family trust to buy a property. The property is owned by the trust, and your child can live in or rent the property. This option provides protection and control over the asset.

• Pros: It offers asset protection and ensures the property is managed according to your terms. It can also help with estate planning.

• Cons: Family trusts are complex, and setting one up requires legal and financial advice. It may also have tax implications, and the property’s use as a primary residence could affect your child’s eligibility for certain tax benefits, such as the main residence exemption for capital gains tax.

8. Joint-Venture Investment

You can partner with your child to buy an investment property, often in a relatively affordable area. This allows them to start building equity while continuing to rent or live elsewhere.

• Pros: The property could provide rental income or capital appreciation, and it allows your child to get a foot in the market while potentially living in a location more suitable to their lifestyle.

• Cons: Managing an investment property requires ongoing commitment and financial input. It can also lead to complications if the investment doesn’t go as planned, and both parties are jointly responsible for the mortgage.

9. Use Your Superannuation

If you’re over 60 and have a self-managed superannuation fund (SMSF), you might be able to use it to buy property. However, the property must be an investment, as SMSF rules don’t allow personal use, including housing your child.

• Pros: SMSF property investment can offer tax benefits and long-term asset growth.

• Cons: Your child can’t live in the property, and it must serve strictly as an investment. There are also strict rules governing SMSFs, so you need to ensure compliance.

Secure Your Family's Future

The key is to find a strategy that allows you to support your children while protecting your own long-term security. Before making any decisions, it’s important to consult with a mortgage broker or financial adviser who can guide you through the process and help you make the most informed choice.

Ready to take the next step? Call us today at 1300 889 743 or fill out our free online assessment form to explore the best options for you and your family.