To help or not to help?
According to the Australian Bureau of Statistics’ latest Wage Price Index1, wages grew only 1.9% between March 2016 and March 2017 quarter. Meanwhile, CoreLogic figures show that the mean dwelling price in Australia has risen 11.2% in the 12 months to March 20172.
If you’re the parent of a first home buyer, you may be thinking about how you could potentially help your child achieve their home ownership goals sooner rather than later. There are a few things you can do - which we've outlined below.
Let them stay at home longer
By having your child live at home for longer, they’ll have the ability to save more money. With fewer bills and little to no rent to pay, your child will have a greater capacity to build a deposit.
Giving a cash gift
You can help your child overcome the challenge of saving for a deposit by giving them a monetary gift. It’s important to note that any cash gift you give your child will have to be kept untouched in their savings account for at least three consecutive months to prove to a lender that your child is a reliable saver and can service the loan.
Go guarantor on a loan
You may choose to go guarantor on your child’s loan by using the equity in your property as extra security. As long as your child is able to service a mortgage, this strategy could allow them to buy a home without a 20% deposit, thereby avoiding Lender’s Mortgage Insurance.
Please note that there are also some pitfalls of which you need to be aware. For example, should your child default on their loan, as the guarantor you’ll be liable for the mortgage. It’s therefore important to have a serious discussion and ensure you have a plan of attack should your child end up struggling with the mortgage.
Understanding guarantors guide
Buying a property is one of the biggest financial commitments you’ll make. A guarantor might be the helping hand you need to get into property sooner. We explain in this guide what a guarantor is, who they are, and how you can benefit.
Buy together
If you’re not comfortable being a guarantor, you may want to purchase together. Make sure you and your child talk in detail about how this loan will work. For example, how much are you each going to contribute to the deposit and the monthly repayments, and will your child eventually take over all the payments? You need to be clear with your strategies from the start so that the mortgage does not become a cause of disagreement down the track.
Create a budget
Take some time to draw up a budget together, taking into consideration your incomes and planned spending. You should review it regularly to make sure it’s working for your goals and current financial situation.
