As the cost of property continues to rise faster than wages, the ability to get a deposit together is getting more challenging. For those that have children who are struggling to get into the property market, it’s natural to want to help. But what are the best ways to do it?
Give them money
This is the simplest method – no strings attached cash in the bank. Your children can buy what they want, when they want and you won’t be disappointed if you don’t see the money again because you haven’t set any expectations. This option, however, is only applicable if you have so much money that you’re happy to give it away. Be aware that some banks will still want to see a record of savings, so make sure your children have a good mortgage broker to help them navigate the right lending options.
Lend them money
Much better for you than simply giving it away, you can lend money to your children with the expectation that they’ll pay it back. Whatever you agree to, make sure you have it in writing because sometimes things do go wrong. If you don’t feel comfortable getting your children to sign a loan contract, consider it protection for the family. If they divorce or have business troubles, the family should be able to get the money back before the assets are sold and divided up.
Match their savings
When you’re young and trying to save up for a first home deposit, your income may not match your ambition. Saving a high percentage of your salary is as much as anyone can do, but sometimes it’s just not enough. A great way of helping a child out is to match their savings. For example, for every dollar they can save, you’ll put in two. In this case, to get together a $100,000 deposit, they’ll only need to save $33,000. Still a big challenge, but you’re bringing the goal a lot closer to them without taking away the hard work and achievement.
Offer a family guarantee
One of the most popular ways of helping the next generation into the property market is sharing your house equity with your children. A bank will take security over your property for the deposit and costs and then lend up to 100% of the purchase price plus costs to your children. If something goes wrong, you’ve guaranteed up to 20% and costs, but the rest of the debt will sit with your children. If you’ve taken comfort in getting the deeds to your property back, this may be a bit of a stretch. But if you’re comfortable that your children can afford the property and are responsible with money, it might work well for you all.
Tell them to suck it up
Finally, you may not be able or want to help your children into the property market. If something goes wrong and you’ve lent money or offered up equity in your house, it could set back your retirement plans. It’s great to help out your children, but not at the expense of your own financial future. Make your decision carefully and get advice along the way to make sure that you’re aware of your options.
Consistently ranked one of Sydney’s top financial planners (Adviser Ratings), Brenton helps his clients life a great life by making the most of their money. Read his full bio here.
