The Bank of Mum and Dad. Should You Help Your Kids Onto The Property Ladder?
There comes a time when all parents wish their children would leave home. While they may pay board or help mow the lawns, moving out can be the making of young adults in the real world.
Yet home ownership rates are falling. Not only are more people retiring with mortgage debt, but Millennials and Gen Z’s are also more likely to rent for life than earlier generations. The opportunity to climb onto the property ladder can be a rung too far for many.
Perhaps the Bank of Mum and Dad might be in a position to lend a helping hand? While this will ultimately depend on your own financial position, it’s something that a growing number of parents are seriously considering. Based on a survey of 3000 prospective and recent home buyers the Genworth First Home Buyer Sentiment Report for September 2019 showed almost 40 per cent of all recent first-home buyers relied on parental or family assistance.
But if you are a parent in this situation, before you decide to gift a deposit, agree to be a co-buyer, or go guarantor, there are some other important aspects you should consider.
Can they really afford the other costs of owning a home?
On the surface, buying a home seems simple – find the right one that ticks the right boxes, make an offer, pay the deposit and move in. However, owning your own place also means being responsible for the utility bills, insurance, rates, living expenses, and having to make monthly repayments on a mortgage.
Buying a house is a serious financial commitment and you don’t want to leave your kids in a problematic situation down the line.
Do you want a business relationship with your kids?
Since you are the party that is paying for the home deposit, you are providing a substantial amount of money for something that you won’t live in. While this isn’t a reason not to make this wonderful gesture, the relationship between yourself and your kids could could change as a result.
Before passing the deposit over, establish some ground rules or processes. This could include how your kids will pay it off and the role that you will play in the running of the new house.
Will this upset the status quo?
One of the great things about kids is that they understand when they are getting a raw deal! If you enter into a major financial agreement with one child, what about the others that haven’t received the same?
One option could be instead of paying a home deposit for just one child, draw up a contract with a lawyer that explains all children technically own the house and can share the financial burden and possibly even the living arrangements. This outcome will certainly depend on the relationship between you and your kids, but could be an opportunity for an investment across everyone.
What about Mum and Dad?
Those who have the financial means often find satisfaction in transferring wealth to their children during their own lifetime, but it’s important to make sure you have enough rainy day money before helping the kids. A good starting point is to talk to your accountant or financial advisor to determine how much capital you can comfortably afford.
For First Home Buyers considering getting foot a in the property market door, Port Macquarie offers excellent opportunities. From new homes in the family friendly area of Thrumster, to more modest homes in popular areas of the Hastings and Shelly Beach, the options are many. Add in the First Home Loan Deposit Scheme, recent RBA cuts and the loosening of APRA’s serviceability restrictions, all the right ingredients are coming together, and now could just be the best time in years.