Parents to the Rescue. Helping Kids Buy Their First Home
Many experts are predicting 2016 could be the year for first home buyers? With the softening of the property market, changes to investor lending and a large number of high rise apartments becoming available as a result of the construction boom across the country it is looking likely.
LJ Hooker research highlighted a number of new ways savvy Gen Y's are buying their first home....and one popular way is with the help of their parents.
Offering to be a guarantor can be a great way for parents to help their children
Helping Your Kids Buy Their First Home
2016 brings a new opportunity for first-time buyers. Better employment outlook combined with the continued increase in listings and less competition from investors, it is set to open new opportunities especially for those previously priced out of the market.
All that said, house prices can still be prohibitive and many would be first time buyers are finding home ownership out of their reach. Although some may have the financial capability to service a loan, finding the desposit can be challenging.
Recent LJ Hooker research highlighted how parents who have children in this position, are offering to help them. However it is important to follow the right strategy and approach and to understand the risks involved.
Acting as Guarantor
By putting yourself down as a guarantor it can give your children the extra financial support needed to maximise their chances of meeting the requirements of their bank or lender.
This process allows you to unlock the equity built up in your own property and then use this as collateral, helping your kids achieve homeownership sooner. If you're not sure what your own property is worth, LJ Hooker can give you and obligation free appraisal. And if you have an appraisal before 29 February 2016, you'll go in the draw to win one of 5 x $20,000 cash prizes. And if you win you may not need to lend them anything. Click here for more.
Best of all, this strategy does not require you to dip into any of your own savings or liquidate any assets, reducing the risks and financial strain for you.
It is critical that you speak to your financial adviser or mortgage broker before exploring this type of arrangement as they are in the best position to advise you on the right approach.
Know the Risks
Acting as guarantor can be a great way to help your children break into the property market. There are however some real risks you need to be aware of.
When you are talking to your financial adviser or mortgage broker, be sure to discuss the circumstances in which you will be held accountable for loan repayments, how much of the loan you will be responsible for and for how long will you need to act as guarantor for the loan.
If you decide to be a guarantor for your child’s mortgage, you will be held accountable for any late or delinquent repayments.
Before becoming a guarantor its important to be clear about your childs ability to make the required loan repayments. Make sure you look closely at your childs current financial status.
Traditionally, you would have been held accountable for the first few years of the mortgage; however, the exact period will ultimately depend on the lender and the size of the mortgage.
As the size of the mortgage decreases and the value of the property grows, you will be able to relinquish your support, allowing your child to take full responsibility for their home and mortgage.
Deciding to go guarantor on your child’s mortgage is a big decision and one which requires careful consideration and discussion with your financial advisor or mortgage broker. But with the right approach and understanding, you can give your child a leg-up onto the property ladder and start them in the right direction to secure their financial future.