The cost of living paired with the current housing market has made it even more difficult for young people to afford their first home. Supportive parents or guardians may want to help assist their adult children, aspiring First Home Buyers, to enter the housing market but are not sure how.
Here are some tangible and beneficial ways parents can contribute to their children's housing aspirations to make the dream of home ownership more of a reality.
1. Lend them money
If parents are fortunate enough to have some spare cash reserves, they can lend the deposit to their children on a commercial basis. Alternatively, they may have equity locked up in their home, so by establishing a line of credit facility they can on-lend the deposit to their children for their first property. In either scenario, there should be a formal loan agreement drawn up between both parties and registered with the appropriate authorities.
2. Provide personal guarantees
This is a true test of faith in children. If parents have any property or other assets, these could be used as securities in the form of personal guarantees to the lender. This may be limited to the amount of the deposit of the new property – but still somewhat risky if there’s a default on the loan! Parents should carefully consider their own financial situation, including potential impacts on their credit score and financial stability. Seeking legal and financial advice before proceeding is highly advisable.
3. Joint venture
Property co-ownership or a joint venture arrangement could be entered into as ‘Tenants in Common’, whereby parents put up the cash for a percentage of the property and allow the child to use the property as security for them to buy their own share. If the child is living in the property, appropriate rental agreements should be put in place, or even consider using an agent to ensure this is managed at arm’s length.
4. Education - the earlier, the better
Encourage children to absorb property know-how and improve their financial literacy skills. For example, encouraging them to attend seminars on money management and property. If mum and dad can start teaching their children about money management early on in their lives, this will help them manage their money better and build the deposit for their first property more easily.
5. Encourage children to become “RENTVESTORS™ and think interstate
Cities like Sydney and Melbourne are out of reach for many FHBs. 'Rentvesting' is when the purchaser acts as a landlord on their property – often in an affordable suburb or region – while renting another property, close to their work, friends, and other lifestyle factors. Their investment property may be negatively geared at first, so ensure they can fund the shortfall as well as the loan repayments.
6. Take advantage of the First Home Buyers Grant (FHOG)
The FHOG is a national scheme aiming to help first-home buyers enter the housing market. The FHOG has undergone changes over the years and varies a great deal from state to territory. For example, in Victoria, A payment of $10,000 is available to eligible first-home buyers who buy or build their new home valued up to $750,000. A new increase to the FHOG is a payment of $20,000 for first homeowners who buy or build their new home valued at up to $750,000 in regional Victoria. Also depending on your state, first-home buyers may be eligible for concessions including discounts on stamp duty and the First Home Guarantee Scheme.
7. Match your kids’ savings
In this age of high inflation, even the best money savers will have trouble matching their savings to their housing ambitions. A great way to give your kids first-home support is to match their savings. For example, for every dollar they save, you’ll put in two. If they save $1,000, you could contribute $2,000, making it easier for them to amass a $100,000 deposit with only $33,000 of their own savings.
While this may still be a big challenge, every little bit helps. You’re bringing them closer to their goals without taking away from their hard work and achievement. This is also a great way to show and foster good money-saving habits and financial independence.
8. Provide rent-free living
Times are tough. Even those who have a high percentage of their salary saved up may find it’s still not enough to afford that first deposit. If your adult kids are still living with you in the family home, consider holding off on the weekly/monthly rent. Instead, allow them to pull their weight by helping out with the housework and maintaining a clean household. Not only will this lessen your workload, but it gives them an opportunity to put that money that is otherwise going back to you, toward a home of their own.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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