Helping Your Kids Enter the Property Market

Young Australians are increasingly turning to their parents for guidance and financial assistance when it comes to home ownership or property investment. With median housing prices reaching new peaks in 2015, the property market has become highly competitive for first-time buyers. Although Australia boasts some of the highest home ownership rates globally, one third of its citizens still do not own property. Despite over 70% of young Australians aspiring to own a home, the home ownership rate among those aged 25-34 fell by 21.5% between 1982 and 2011.

Affordability is the main hurdle for young Australians, making home ownership in their preferred suburbs a two-step process. Building a property investment portfolio has become a common strategy to accumulate enough wealth to eventually purchase a dream home.

Here are some effective strategies for helping your kids enter the property market:

1. Utilise Home Equity for a Deposit

Home-owning parents can tap into their accrued equity by borrowing against it, using this money as a deposit for their children. A substantial deposit reduces the amount their kids need to borrow, thereby lowering the interest paid over the life of the loan.

2. Purchase Property in Your Name

If your child struggles to save for a deposit, you can buy the property yourself and have them rent it from you at a reduced rate. This arrangement allows them to save steadily with the intention of purchasing the property later. Ensure you are financially stable enough to cover this until your child can buy the property, and establish a realistic timeline for their savings goal.

3. Invest and Co-Own the Property

If you can commit more financially, consider signing as a joint borrower on the loan and co-owning the property. However, be aware that if your child fails to make their repayments, you will bear full financial responsibility.

4. Act as a Mortgage Guarantor

If providing a lump sum is not feasible, but you own property, you can use your equity to act as a guarantor for your child’s home loan. This should be a well-considered decision, as you risk your home if your child cannot repay the debt.

5. Offer Sound Advice and Support

Before providing financial assistance, educate your child on good money habits, budgeting, and planning. Ensure they understand the basics and terminology involved in purchasing property. Whether you offer financial aid or valuable advice, it’s a good idea to consult an accountant, financial planner, and property lawyer to determine the best way to support your kids in entering the property market.

Helping your children break into the property market is a significant gift, whether through direct financial support or empowering them with knowledge and advice. Always seek professional advice to find the most suitable approach for your family’s situation.