Rising property prices. Cost of living pressures. Lifestyle choices. Interest rate hikes.
The property market is tough out there for young Australians – really tough.
This can make the dream of owning a first home seem further and further away, leading many young Aussies to think outside the box and look for creative ways to get a leg up onto the property ladder.
And one of those ways (no surprises here!) is calling on the good old bank of Mum and Dad.
So if you’re wondering “how can I help my child buy a house?” (without risking your finances and assets in the process) then this article is for you.
We’re going to dive into 5 ways to help your child break into the property market, including the pros and cons of each option.
How to help my child buy property in Australia
You’ll be relieved to hear that there are multiple ways to help your kids buy a property – each with slightly different processes, commitments, risks and benefits.
So, let’s take a closer look.
Be your child’s ‘guarantor’
A guarantor is someone (usually a family member) who adds an extra layer of security to a home loan.
In a nutshell, as your child’s guarantor you’ll be agreeing to take on some of the risk if your child can no longer pay back the loan (so it comes down to a lot of trust).
This is often done through the equity of a property you own (security guarantor) or much less commonly through income assistance (servicing guarantor). For the purpose of this article, we’re focussing on a security guarantor (as a servicing guarantor is rarely used these days).
While a family security guarantee is often done using the equity in your property, it can sometimes be done using cash. It’s also a limited guarantee, meaning you – as the guarantor – have the final say over the amount you commit to.
| Pros – guarantor | Cons – guarantor |
| You’ll be giving your child a leg up onto the property ladder, helping to increase their borrowing power and potentially avoid Lender’s Mortgage Insurance. You don’t need to make any out-of-pocket payments (you’ll only be out of pocket if it gets to the worst-case scenario and your child can no longer make payments, so then you have to step in). You can CHOOSE the amount of risk (cash) you’re liable for. It’s not forever. You can remove the guarantee when certain criteria are met (like your child hasn’t missed a payment for 6 months or when enough equity is built up). | Worst case scenario: you may owe the lender up to the amount you guaranteed. If you don’t have the amount you guaranteed lying around, you may have to sell your property to cover it. You may have trouble moving house or getting a new home while you’re acting as your child’s guarantor (so before going in, you might want to make sure you’re not planning on moving in the near future). |
Learn more about guarantor home loans.
Gifted funds to help with your child’s deposit
It’s all in the name – ‘gifted funds’ are when you ‘gift’ money to your child (usually in a lump sum) and it’s often done to help cover a house deposit. This can help your child with the hardest part of entering the property market, saving for a deposit.
With gifted funds, there’s no expectation that the money will be paid back (unlike lending funds which we’ll cover next).
In many cases, you may need a ‘gift letter’ as part of the application process to formally document that the money’s a gift and not to be returned.
| Pros – gifted funds | Cons – gifted funds |
| There’s no ongoing commitment or risk – it’s a once-off payment with no strings attached. It’s the simplest option and less ‘formal’ than lending funds – you simply transfer the cash and it’s done. It can increase your child’s purchasing borrowing power and potentially help them avoid Lender’s Mortgage Insurance. | The most obvious one, you’ll be out of pocket (there’s no expectation your child will pay it back). It’s simply not an option for some families who don’t have spare cash lying around. |
Lending funds (AKA a parent-to-child loan)
This is similar to ‘gifted funds’ with one key difference: there’s an expectation your child will pay the money back.
Because of this expectation, it’s not as straightforward as simply transferring them the cash and sending them on their way – you need to agree on some terms and conditions.
Whether you opt for gifted funds or lending funds comes down to your personal situation – that is, whether or not you want your child to pay back the money.
| Pros – parent to child loan | Cons – parent to child loan |
| The obvious advantage: you’ll eventually be paid back for the money you lend. As it’s just between you and your child, you can decide things like the loan term and interest. You can make it work for both of you (and perhaps with a bit more flexibility than what a lender would offer). It can increase your child’s purchasingborrowing power and potentially help them avoid Lender’s Mortgage Insurance. | It’s a little less straightforward than ‘gifted funds’ – you will likely need a written and signed formal agreement. By formalising the loan, the bank will likely assess whether your child can afford both the parent-to-child loan and their mortgage repayments – so it’s another factor when getting approved for a loan (for this reason, a lot of parents opt for gifted funds to keep things simple). Your child will still need to demonstrate they have genuine savings – so it’s probably not as simple as transferring them the full deposit amount. |
Joint ownership
Teaming up! Joint ownership is when you and your child decide to co-purchase a property, meaning both of your names will be on the title, and you’ll both own a stake in the property.
Further down the track, your child may choose to buy out your share of the property – meaning it’ll then be their sole responsibility. But this second step is entirely up to you and your child.
| Pros – joint ownership | Cons – joint ownership |
| The lender will take both of your incomes into account which can increase your borrowing power. Your child may be able to buy a property that they otherwise wouldn’t have been able to – joint ownership could be the difference between buying in an area they actually want to live (rather than buying where they can afford). Your child can ‘buy you out’ in the future, so this strategy can be a means to an end (and you may even benefit from the investment if the property appreciates). | You and your child need to have a solid relationship and be on the same page – after all, you’ll both be sharing an investment and all the decisions that come with that (both now and into the future…hello new life partner!) It’s a big commitment – you’re taking on the responsibility of another home loan, which can be a drawback for some parents (fair enough). There could be tax and stamp duty implications with this approach so professional advice should be obtained. |
Let them live at home – rent free
Now, this may not be for everyone, but your child can move back home to save some cash (ok … we’re seeing some parents celebrate and others wince).
| Pros – living at home | Cons – living at home |
| It’s a simple and straightforward way to help, without being out of pocket (except for maybe an increase in bills). You can spend more quality time with your kids. | It’s not ideal for every parent-child relationship. Some families might prefer the freedom of living away from each other, and that’s ok. It doesn’t get your child what they want right away – their own home to live in. |
How to help your child buy a property – start by chatting with a broker
At Finspo, we’re a team of brokers (but not the suit-and-tie-wearing kind) ready to help you explore options that truly suit YOU.
So, if you’re looking at ways to help your child buy a property and want more info, speak with a broker today. It’s free with no obligations, and you can come with or without your child.
Otherwise, if you’re ready to get started with the home buying process, set up a joint conversation with you and your child.
Meeting with a Finspo home loan expert is as easy as 1, 2, 3.
- Book a chat with a friendly Finspo expert (online, phew!)
- Tell us about yourself and provide any additional info
- We’ll do the heavy lifting and present you with some loan options and a recommendation
