Ways to Get Your Children onto the Property Ladder
According to some recent statistics, in the year 2019, the average price of a residential home in Australia was around AU$636,900. The most expensive region is New South Wales, Sydney in particular, with the average house price being AU$806,800. Conversely, Tasmania is on the low end with an average price of just AU$412,700.
So, with the prices being what they are, how do you help your children find a new nest and settle down? There are several ways, in fact, and we’ll cover each one down below. Come take a look!
Loans
There are two options here. The first one — you lend them the money yourself and you agree on mutually beneficial terms; including the whole amount, monthly payments, the interest rate, etc. The main thing to consider here is whether both sides can afford to do such a thing? Also, even though everything might look good on paper, unexpected issues can put a severe strain on your relationship; sometimes beyond repair. So, be careful with this one.
As for the second option, it concerns them getting a guaranteed loan instead. What this means is they borrow money from a third party and you, essentially, vouch for them. If they miss any payments and the like, you step in to cover for them; simple as that.
Downsizing
The most straightforward way is just giving them the money in the form of a sizeable deposit. Now, chances are you don’t have sacks of cash lying around your home; meaning, you’ll have to get it from somewhere, right? Usually, how people go about this is simply downsizing and moving to a smaller home to save money and remove any unnecessary clutter from their daily lives.
In fact, there are plenty of retirement communities in Australia, particularly in New South Wales. Hence, finding a nice and quiet retirement village on the Central Coast shouldn’t be too difficult. Security is never an issue here — giving you some peace of mind — and there are lots of people who are in the same situation as you are, making them ideal companions and friends.
Family Offset Mortgages
Yet another way of helping your children to get onto the property ladder — family offset mortgages. Basically, how these work: you can put any amount of money into their mortgage account (much like you would a savings account) to reduce the overall debt they have to pay. For instance, say they have a mortgage of $100,000. If both sides contribute $10,000 each, they only have to pay interest on the remaining $80,000 and not the whole sum.
The only real downside of this method is that you cannot withdraw your savings until after the debt has been paid, in full. What’s more, the money doesn’t accumulate any interest over time; its only purpose is to offset the mortgage debt and make it easier for your children to pay their dues.
Joint Mortgages
If you can’t beat them, join them — as the age-old axiom states. A joint mortgage allows you to combine your incomes to make a push for that new property your children want to call home. Doing so means you are liable for any payments (similar to the guarantee loan) that your children cannot afford to pay.
Nevertheless, there’s still one major difference — you actually own a share of that property now. On the size of this share and the amount of monthly payments that you have to pay is left exclusively for you to decide. So, do not go overboard if you cannot afford it.
Equity Release
Finally, there is the lifetime mortgage — an equity release scheme — where you can borrow money against your current home. The idea is to give your children an early inheritance that they can repay fully after you’re gone by selling your home. That way, your children get a sizeable deposit for their new home while still having a nice roof over your own head.
Depending on your overall health (and age), you can borrow as much as 50% of the total value of your home which is repaid only after your death — you don’t have to make any payments before that.
Of course, there’s a lot of things going on here, so be sure to check with your lawyer first, before going all-in on this option.
In the end, it’s not just your decision; you need to consult with your children as well. Listen to their advice and find mutual ground that is beneficial for both parties.
