You look at your kids struggling to save for a home deposit, and you can see they could use a hand. Surely there must be a way to help them get on the property ladder. But where do you start, and how do you set it up so that everyone’s interests are protected, including your own?
You’ve worked hard to get where you are and build your own assets, and it’s no small thing to put your assets on the line. So if you’re considering using your position to help your kids, that’s very commendable.
Knowing where to start can be a bit of a puzzle, so if you’re not sure how to go about it you do have a few options open to you.
In this article we highlight two of the most common ways of helping your children into their first home. Beyond this there are certainly other options, but it does get a bit complex.
For all lending of this manner we cannot stress enough to utilise a professional mortgage adviser to help you negotiate the pitfalls, assist with the paperwork, and help you find a lending structure that is right for you and your kids.
We have seen a lot along the way so trust us: a bit of good advice goes a long way!
Two simple ways to help your kids into their first home:
- Go guarantor. This means using some (or all) of the equity in your existing property (whether it be your own home or a rental property), to support your children’s loan application. Before doing this you need to make sure that you have considered the worst case scenarios, whether you are prepared to weather the risk and not over-leverage your own situation. Be prepared that in some cases there may be a requirement for the guarantor to show they can service the part of the loan amount they are guaranteeing. However, assuming you can comfortably use your equity and have plans in place for any surprises, this can be a successful way of helping them onto the ladder without fronting up with any cash per-se. Our mortgage adviser can take a look at your situation and help you weigh up the risks.
- Cash gifting. You may be in the enviable position of having some cash, or investment assets that can be easily liquefied, to throw into the mix. Whole of life or endowment type insurance policies usually mature around age 60-65 as well so this may be an avenue for you. Cash gifting seems like an obvious solution and if this is an option for you, that’s great. You could also provide the cash to them on a loan basis, but be aware that any repayments will likely be factored in by the banks when they assess your children’s ability to service the loan (however it will come down to the stance of the bank at the time). For your children’s loan application to be successful they will need to ensure they can service the full amount of lending. Going through the loan pre-approval process is a good way to test this out.
A bit of extra advice.
Protect your family. In both scenarios you will probably want to ensure there is a structure in place to protect your own interests and that of your direct family. This is particularly true if your child is married or in a partnership and you would like to ensure that if the relationship ends, your child retains the benefit of your input, and not their partner. Clauses like this are very common and your lawyer can assist with this – make sure you mention it early on.
Individual cases will vary. In all cases it’s a prudent idea to seek professional mortgage advice to assess your personal situation. If you choose to work with us, our experienced Mortgage Advisers will be more than happy to point you in the right direction and help you make smart decisions for all concerned.
Save time & work remotely. Because there are a few parties involved it can be a challenge to get everyone together to sort the paperwork, particularly if there’s physical distance between you! That’s why we are happy to work with you and/or your kids over the phone, via skype or email, or face to face of course if you prefer.
WANT THE NEXT STEP?
Drop us a line and we can help demystify the process, establish a starting point and get you headed in the right direction.
It’s a service that comes at no cost to you*, and puts your interests first – learn more here.
* Our standard Mortgage Advisory service is provided free of charge as we are remunerated (paid) by the banks, but we also provide specialised services and advice for non-conforming, credit-impaired, business and complex cases. After our free initial no-obligation consultation, we will advise you if a fee may need to be charged before we undertake any work. In many cases we may find a simple solution for you.