First Home buyers, A Helping Hand from Parents

Parents now want to assist their children to achieve the great Australian dream of home ownership. It is reported that 8 in 10 parents are prepared to lend a hand by providing some form of financial support in an effort to help their children enter the property market. This financial support may be in the form of:
• Gifting at least part of the deposit to their children,
• Providing a supplementary loan in addition to the bank loan, typically interest free, and
• Acting as guarantor (although the drawbacks need to be considered here).

Gifted deposits

Parents providing assistance with the deposit must be aware that a gift is not repayable. The majority of banks will require parents to declare that the funds they have provided are a non refundable gift.

Supplemental loan

Parents who have available finances today but with future needs, may want to consider providing a supplemental loan to their children, potentially with low or no interest. It is strongly recommended that this type of loan and its terms be documented between the parties. Remember, parents may have a good relationship with their children and their
children’s partners now, but who knows what might happen in the future? As an alternative to providing a loan, parents can choose to buy the home with their children, allowing the child to enter the housing market and providing the parent with an investment property. In this scenario, it is a more common practice for the parties to be “tenants in common” rather than “joint tenants” and also allowing a different ownership ratio to the normal 50/50. However, with part ownership the child will not qualify for the First Home Owner Grant.

Acting as guarantor

Some lending institutions have what’s called a Family Pledge. This allows family members with equity in their own property to help their children/grandchildren/siblings with additional security, thereby allowing them to borrow up to the full cost of the home. Some lending institutions allow the guarantor to nominate the specific amount to which the guarantee is limited rather than a traditional open guarantee for the entire amount. The guarantors are usually recommended or required to gain legal and financial advice in order for the lender to proceed with the guarantor’s loan. Please call the office for more information on any of the above topics.

About Paul Brazier