How can you help your kids get onto the property ladder?
While some parents may be in the fortunate position to buy their children a house outright, this is certainly the exception and not the rule.
And, yet, all parents are likely to cast a cautious eye over property headlines as they ponder… How will my children ever be able to afford a home?
If you’re looking for ways to ever-so-gently nudge your children towards property, here are some ways you can help them:
Provide learned advice from your own property journey
This is the cheapest option, and you can start whenever you like!
Teach your kids about the value of money, and instill wise choices and saving habits.
Encourage them to save their pocket money to save up for treasured possessions, rather than splurging on the latest gaming console.
As they get closer to the age where they can buy property, make sure they understand concepts like stamp duty and mortgage insurance. It’s important that they understand that buying property is more than just saving for a deposit.
There are plenty of hidden costs – forewarned is forearmed!
Help out with the deposit
This might be ambitious for many parents, but it can seriously fast-track their journey towards becoming a first home-buyer.
Saving for a deposit can be hard work and take several years for a young person just starting out. By giving them a financial leg-up, you could be giving them just what they need to achieve their property and financial goals.
The ins and outs of the arrangement are completely personal, but ultimately, your kids need to be aware that they have a deposit in their account for a period of time without spending it for the banks to consider it genuine savings for a deposit.
They will also need to demonstrate that they have income to cover loan repayments.
Consider buying together with your kids
Buying in partnership with your children could be a solution if you’re reluctant to provide them with a loan.
By purchasing as joint venture partners, you will boost your child’s borrowing capacity whilst chipping in for their deposit.
This is also a win-win, as you’re building your own wealth whilst helping your kids build their own nest eggs.
But be warned… this strategy comes with its own risks!
By partnering with your kids in the purchase, you are putting yourself on the line for your child’s repayments. You need to be 100% certain of their capacity to make loan repayments.
Use the family home or a property as a guarantor
A family guarantee uses your own property as security.
This means that you don’t have to fork out your own money, and your whole house won’t be on the line either.
This type of guarantee is usually limited to a certain amount, related to the value of the new property and the loan remains completely in your child’s name.
Fair warning! First homebuyers still need to show that they have the capacity to repay the loan. If your child defaults on the loan, this puts the repayment responsibility on you as the guarantor.
We always think that it will never happen to us, but always make sure you have an action plan in place in case things go sour.
Final Points…
Some of these suggestions might impact your child’s ability to get access to first homebuyers grants and incentives. Make sure you speak to an accountant or a financial planner to discuss your plans and goals.
If you want to learn more about helping your kids get onto the property ladder, make a time to come see us at Adpen.
