Homeownership rates are dropping around the world and in most areas, it is getting harder and harder to buy your first home. With property prices as high as they are, many first home buyers are only able to purchase a property with help from family.
In this guide, we run through 5 common ways you can support your kids onto the property ladder.
Consult with your lawyer and mortgage adviser before deciding which option might be best for your situation.
1. Gift part of the deposit (most common)
The stumbling block for many first home buyers is building up the deposit required to obtain finance. They may have enough income to service the loan but are struggling to put together the down-payment. Option 1 is to simply gift them the amount they need to top up their own savings so they can secure finance approval from the bank.
2. Lend part of the deposit
Similar to option 1 but in this case you are lending your family member an amount to top up their deposit. You might choose to offer this loan on interest-free terms with no-repayments, or you could choose to charge a nominal interest rate, comparable to what you might get if the money was on a term-deposit at the bank.
Either way, this option helps you protect the money in case of a relationship breakup and ensures you can ask for the money to be paid back to you in the event the property is ever sold.
3. Guarantee part of the loan
Banks will often let you guarantee a small amount of the loan (i.e. 20%) and that can be enough to help your family member secure mortgage finance. With this option, your liability is limited to a smaller amount than the total mortgage. The key here is to make sure you have some funds available to cover the payments on your guaranteed portion of the loan in case anything goes wrong.
4. Buy the property with your child
Add your names to the deed or title and enjoy shared ownership of the property. This may be necessary if your child can't secure finance from the bank on their own, but have the ability to pay back the mortgage.
This could occur if they have a fluctuating income, or are going to rely on flatmates to cover the cost. You could look to switch the property completely into their name in future, once they can secure a mortgage under their own name.
5. Buy an investment property in your own name
Lock in a home at today's prices, even if your child isn't ready (or able) to buy yet. If your income and equity are strong now, you may choose to grab a property while you can, with the long-term goal of passing it on to your child or letting them buy it off you. This is a great option if your child is still in school, or still a few years away from being in a position to buy.
In this scenario, look for a property where you can add value, which will further increase your equity and make it easier for your child to secure finance against the property in future, as the deposit might already be built into the value of the home.
Make sure you choose a home that you are happy to hold on to (or sell), whether your child likes it or not. It should stack up as an investment property either way.
In summary
If your kids are struggling to get on the property ladder, there are numerous ways you can help. No matter which option appeals to you, just make sure you consult with your lawyer, accountant and mortgage adviser before going ahead.
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