Should you help your children buy a Sydney home?
Mon May 28, 2018
As it becomes more and more difficult for young people to buy a home in Sydney, countless parents are stepping in to help shoulder the load. There are all sorts of reasons why this is becoming necessary, ranging from increasing property prices to the additional burden of stamp duty.
However, helping your kids buy their own house is a complex process, and the choice isn't one that should be taken lightly. In this article, we'll explore some of the ways that parents can help their kids into a first property, as well as whether or not providing assistance is a good idea.
One of most obvious ways for parents to assist their children with a property purchase in Sydney is by helping with the deposit.
How you can help your children
One of most obvious ways for parents to assist their children with a property purchase in Sydney is by helping with the deposit. This typically takes the form of a cash gift, or perhaps a no-interest loan. The benefits of this approach are obvious - helping to secure a mortgage and eliminating the need to spend months or even years saving while property prices continue to increase.
While helping with a deposit is one way to get your kids onto the property ladder, it's not the only option. Some parents, who may not be in a position to provide a large sum of money, prefer to allow their children to live at home rent free, making it possible to save up the required amount in a shorter amount of time.
A third option for parents is to become a guarantor on their child's home loan. This involves using an existing property as security on a loan, allowing children to borrow with a smaller (or no) deposit and avoid Lender's Mortgage Insurance.
Should you help your children
While the options that we've explored in this article are all great ways for parents to help their children with a first home purchase, it's important to consider the associated risks. This is particularly true if you decide to take on the responsibility of guaranteeing your child's loan. If you sign up as a guarantor on your child's home loan and they are unable to make repayments, the lender could call in the guarantee, putting your own property at risk.
For this reason, it's vital for parents to think very carefully before taking on the role of guarantor. Speak to an independent financial advisor to make sure you fully understand the risks, and be prepared with a backup plan in the event of an accident or loss of employment that impacts your child's ability to pay off the mortgage.
If parents decide to help with a deposit but want the money to be paid back, it's vital to lay out the terms of the loan as early as possible.
It's also important to make sure that familial bickering won't come back to haunt you. For example, in the event of parents providing a cash gift, it's a good idea for the parties involved to sign a statutory declaration stating that repayment is not required. On the other side of the coin, if parents decide to help with a deposit but want the money to be paid back, it's vital to lay out the terms of the loan (such as a repayment timeframe) as early as possible, in order to avoid arguments further down the line.
One way to minimise the possibility of disputes or financial issues arising when parents help their children by property is to use the digital platform Kohab. Kohab works by providing a series of simple steps and a thorough legal framework for multiple couples or individuals to 'co-own' a property. While the service can work well for a group of friends, it also makes the co-ownership process easier for parents, allowing them to support their children without the risk of running into legal trouble.
Ultimately, parental assistance is one of the best ways for young Australians to get their foot on the property ladder, and if all parties understand the associated risks and prepare accordingly, the process can make it possible to secure a Sydney home far sooner than would otherwise be possible.
For more information on purchasing the perfect Sydney home, contact Laing+Simmons today.