Family home loans
FIVE WAYS THE BANK OF MUM AND DAD CAN HELP KIDS BUY A HOUSE
As home ownership slips further out of reach for many young Australians, the “bank of mum and dad” is increasingly offering help to children. Researchers say about 30 per cent of first-home buyers now receive money from parents to help out, and the bank of mum and dad is estimated to be one of the nation’s 10 largest lenders.
“We’re certainly seeing more parents and grandparents helping their children and grandchildren with the purchase of a first home,” says People’s
Choice Credit Union spokesman Stuart Symons.
There are several ways to help, some without handing over money, and parents are being urged to understand the benefits and pitfalls.
1 CASH HELP
Symons says the most common assistance is helping with deposits.
“While there are a range of government schemes, which help reduce the necessary deposit to just 5 per cent, that can still be difficult to save – especially when you are paying rent at the same time,” he says.
Research by LocalAgentFinder shows 28 per cent of parents say they are willing to give money as a deposit, while 26 per cent are willing to lend.
LocalAgentFinder chief executive Richard Stevens says the research found that many Australians want the government to do more for first home buyers and housing affordability.
“While the problem persists, most parents are willing to step in to support their children,” he says.
“The bank of mum and dad will continue to be a significant force.”
2 GOING GUARANTOR
The LocalAgentFinder research found 26 per cent of parents are happy to guarantee their child’s mortgage.
This practice has surged in popularity and usually involves parents using part of their own home as extra security for the loan. It doesn’t cost the parents money but there is a risk they will have to pay back the debt themselves if their child cannot make the repayments.
Symons says providing a family guarantee “helps with the deposit and insurance”.
“Just what parents can do depends very much on their own circumstances, so we would always suggest you consider getting professional financial advice so you can provide the help you want in the best way and avoid nasty surprises,” he says.
3 SHARING THE SAVINGS
Scraping together a deposit is tough, especially when other living costs are rising twice as fast as wages.
Some parents charge board once their children start working but save that money in a separate account to eventually go towards a deposit, while others match their children’s own savings dollar-for-dollar to double the deposit funds.
“Thinking longer term, the earlier you start saving the better,” Symons says. “The deposit hurdle is going to be a lot smaller if everyone’s been working towards it for five or 10 years.”
4 INVESTMENT TEAMWORK
It’s increasingly common for young adults’ first property to be an investment, where they have tenants helping them pay their mortgage while they still live at home.
Symons says some parents buy an investment property “with the longterm goal of selling or passing it on to their children … in the future”.
Other parents may decide to be joint owners to smooth out an investment property purchase, then allow their children to receive all future capital gains.
5 VITAL SUPPORT
For some, the most important help is providing motivation and emotional support.
“Make sure you’re aware of all the relevant federal and state government programs, and speak to
your bank to understand their products and see what they are willing to do,” Symons says.
Stevens says parents can help with research and planning.
“Really support them in that research phase to set up the right behaviours,” he says. “Ensure they set up a savings account ASAP.”