A Room Of One’s Own

Smart strategies to help your kids get on the property ladder.

There’s no time like the present to teach your kids good moneymanagement skills or to plan for their financial wellbeing, regardless of how young they are. “Encouraging children to budget and save from a young age helps build behaviours that will serve them well later in life,” says Dimitra Dinos, general manager of home loans for Commonwealth Bank. “When the time comes that your kids are ready to buy a home, the support you’re able to provide depends on your circumstances (and theirs). The most important question to ask yourself, however, is whether your adult children are financially stable and ready to take on the responsibilities of a home loan.”

If you’re looking to help your child get a home deposit together – either by giving them the money as a gift or a loan – it’s a good idea to set up a high-interest savings account or a term-deposit account as soon as you can. “That way you’ll see the benefits of compound interest over time,” says Dinos.

Many prospective first-time buyers can afford monthly mortgage repayments but find saving a deposit to be the real challenge – and this is where parents can sometimes help. “Be very clear about whether you expect this deposit amount to be repaid, and be realistic about your children’s financial track record and their ability to repay a home loan.”

Another option to consider is purchasing a property together with a joint loan, which means parent and child both own a stake in the house. Some parents enter into this arrangement with the expectation that their offspring will one day buy out their share of the home when they have more funds, or will pay back the parental investment when the property is sold. Family members may be your nearest and dearest, but it’s important to seek independent legal and financial advice before making any decisions.

Parents who don’t have a lump sum to give or loan to their child for the deposit might instead consider becoming a guarantor to the child’s home loan. “Acting as a guarantor can help children avoid Lenders Mortgage Insurance (LMI) and ensures their money is being spent on paying off the mortgage itself,” says Dinos. “Your child may be more likely to secure a home loan and your contribution might help them increase their borrowing capacity, but at the end of the day, if your child can’t pay back the loan you will be responsible for repaying the debt.”

If you don’t want to (or don’t have the means to) become guarantor there are still ways you can help.

“Many parents with adult kids find themselves with extra space in the family home,” says Dinos. “You could allow them to move in for a set period to help them save up for a deposit. Just remember that this might have an impact on your own bills and living expenses, so be certain you can sustain this or ask them to pay an agreed amount of rent or contribute to the bills.”

If you’re good with money, you could also think about becoming a financial mentor to your kids. “Helping them establish sensible money habits will set them up with good financial health in the long term,” says Dinos. #

Helping your children establish sensible money habits will set them up for good financial health in the long term.

Whether it’s going guarantor on their home loan, or offering rent-free living, helping our adult children to buy property has become more common in recent years, particularly with escalating city property prices and stagnant wage growth.

As a finance expert and mother herself, Dimitra Dinos, General Manager Home Loans at the Commonwealth Bank, completely understands why parents would want to help children get a foot on the property ladder but emphasises that there are a few considerations everyone should think about first.

“For example, be realistic about your kids’ financial track record and ability to repay a home loan. It’s also imperative that you consider your own circumstances and ensure that you are able to assist without impacting your own financial wellbeing. While you might be in a position to help today, you need to also consider your future circumstances; both planned, such as retirement; and the unplanned ‘what if’ moments such as changes in your health, relationship, or career,” she says.

And while it’s emotionally compelling to want to lend a hand to your children, it helps to seek another objective (and emotionally detached) opinion.

“It’s incredibly important that you seek independent legal and financial advice before committing to anything,” she recommends.

MAIN WAYS TO HELP

There are two main ways parents can assist their kids to buy property. If your kids can afford monthly mortgage repayments but find it challenging to save a deposit, providing them with a financial payment (that can be used as the home deposit) could be a big helping hand. Depending on your preference, this can be provided as a gift or as a loan.

For parents who don’t have a lump sum of cash available, an alternative option is to become a guarantor on the child’s home loan.

“It’s important to fully understand the pros and cons of becoming a guarantor as there are some risks. For example, as a guarantor you will be responsible for repaying the debt if your child is unable to meet their mortgage repayments,” says Dinos.

THE BIG PICTURE

If you don’t feel comfortable giving a financial gift, have complex or large family dynamics, or don’t have cash available, you can still help your children work towards their first home, which can be just as valuable in the long term.

“For instance, many parents with adult kids may have extra space in the family home. If you have the room, you could allow them to move in for a set period to help them save for a deposit. Just remember that this could have an impact on your bills and living expenses, so make sure this is something you can sustain or ask them to contribute to the bills,” recommends Dinos.

Find out more about buying property at commbank.com.au/home-buying