In the past, buying a home was viewed as a marker of adulthood, often preceding marriage and having children. Times have changed, and currently housing affordability is at an all-time low in Australia. As a parent, it’s normal to want to give your children a hand with property ownership, which makes sense, seeing as it’s estimated that a third of all first-time home owners will receive financial assistance from their parents. Perhaps they’ve had a baby and need a bigger home, or are ready to stop renting and put down roots. Whichever situation applies, here’s what you need to consider before offering them assistance:
- It might be more than you think – it’s estimated that the average parental property loan exceeds $60, 000. It’s a good idea to have a realistic expectation of what you can afford to lend, and to make sure your child understands this. Communication is essential, as it might impact whether or not they can pay you back, as well as on your own future wellbeing.
- Don’t do it if it impacts your plans – delaying a kitchen renovation or holiday so that you can lend it to your children is fine. What isn’t fine is if your loan will impact your ability to save for retirement, or look after yourself in old age.
- Paying for a deposit is better than an ongoing loan – if your children would need financial assistance meeting their monthly loan repayments, this is a sign that they can’t afford to own the property. However, if they just need assistance with getting over the hurdle of the deposit, it’s likely they’ll be able to take care of themselves.
- Plan for the worst – it’s a reality that many marriages end in a contentious battle of who get what. If you’re planning on helping a child finance a property, the last thing you want to have happen is for a divorcing spouse to walk away, having benefitted unduly. To avoid this, it’s best to formalise your loan and have a plan in place should several worst-case scenarios happen.
Provided you enter into the situation with both eyes open, you could be able to use your wealth wisely, to help your children secure a future for themselves and for their future generations. To get started you can contact one of our financial planners for advice.