Buying property: how to give your kids a helping hand

25 February 2020

With property prices in Australia on the increase, it has become a growing trend for Baby Boomers to step in and help their children buy their first home. In fact, a recent REST Industry Super Survey found that, an incredible, one in three retirees in Sydney, Melbourne and Perth and one in five in Brisbane and Adelaide were looking to give their adult kids money to help them get onto the property ladder.

We sat down with John Cunningham to find out more about this ongoing trend and what can be done as parents to help children realise their property dreams.

John, when you look at the stats around how many parents are helping their kids move into their first property, it’s astounding. Why do you think this has become somewhat of a trend?

Without a doubt, this trend is growing and in reality it is a serious consideration for many families as it offers the only way to help their children into home ownership. With interest rates at record low levels, the biggest issue is often not the debt repayment but getting the necessary deposit together to secure a loan on good terms and conditions.

What are some of the ways that you have seen parents help their children into property?

The traditional method was by being a loan guarantor, but these days it is mostly through deposit assistance or second mortgagees. Those fortunate enough are being gifted deposits as an early inheritance and there are many who are doing joint ownership arrangements to receive investment tax benefits. We are also seeing more dual living arrangements in duplexes or even new builds that go beyond the traditional granny flat arrangements so there are many ways that parents can help their children invest in property.

What do you think parents need to be aware of when making the decision to financially assist their children into the property market?

There are many benefits and also many many pitfalls, so seeking good legal and financial advice is critical. If there is a loan involved it is essential that a proper mortgage is registered against the property security as research tells us that the most common people to default on a mortgage are family members. I have heard too many horror stories of those who have relied on a family investment as a retirement income source and have seen their nest egg disappear through a family breakup.

Also, parents who may want to protect their own child in the arrangement often create a loan so that they are protected in the event of a marital breakdown. There is risk associated with families, money and sibling rivalry if things are not worked out evenly or fairly. This can destroy families as a result so be careful, do your research and due diligence and engage help from professional services to assist you in making the best possible arrangement.

Given it is such a big investment and there are so many things that need to be taken into consideration – is it worth it?

It all comes down to the intent of the assistance. If it is to simply help them out and there are no strings attached, there are no consequences. If parents want to help their children get onto the property ladder, my advice would be to engage the right professionals (mortgage broker, accountant and solicitor) to setup the arrangement in a way that minimises risk. Seeing your children own, enjoy and even raise a family in their own property is definitely worth it if things are done correctly.