How To: Help Your Kids Buy Their First Home

In recent times, the aspiration of owning a home has become more challenging for young adults due to soaring property prices. This situation has prompted an increasing number of parents to step in and aid their children in securing their first homes. In 2021, the 'bank of Mum and Dad' emerged as one of Australia's top 10 mortgage lenders, extending loans totalling around $34 billion, with an average loan size of $89,000.

Exploring Options: If you're considering supporting your adult children in their quest for homeownership, a variety of options are at your disposal. In this blog, we'll delve into these options, discussing their advantages and drawbacks, while also addressing important considerations for both parents and children.

Important Questions to Consider

Before committing to any assistance method, it's essential to ask yourself some critical questions:

1. Can I Afford It?

   - Consider your current and future financial needs, including retirement.

2. What Are the Tax and Pension Implications?

   - Seek professional advice on potential financial and tax consequences.

3. How Will It Affect Other Children?

   - Consider potential tensions and address them in legal documents and your will.

4. What Are My Expectations?

   - Clarify your expectations for the arrangement, including involvement in property decisions and future care.

5. Have I Sought Professional Advice?

   - Always consult legal, financial or tax professionals before making significant commitments.

Additional Tips

Financial experts provide valuable insights on how to support adult children in achieving their dream of purchasing their first home. Encouraging savings through matched deposit contributions can foster a sense of responsible financial management. Maintaining open communication becomes paramount when parents opt to become guarantors, and seeking legal counsel ensures clarity. If parents choose to gift a deposit, it's wise to consider any potential pension implications. In cases of loaned funds, creating well-defined repayment documentation and incorporating estate planning into the equation becomes crucial. You could even offer rent-free accommodation as a practical strategy to aid your children in their savings journey. 

It’s always best to do thorough research and establish a clear understanding of the responsibilities for those taking on the role of guarantors. Lastly, parents can play a pivotal role by assisting with pre-approval, navigating legal paperwork and accounting for additional property purchase expenses. This collaborative approach guarantees a seamless and well-informed home buying process for their children.

In a challenging housing market, parents are increasingly becoming the key to helping their children achieve homeownership. By carefully considering these options and seeking professional guidance, parents can provide valuable support without compromising their financial well-being. The road to homeownership may be steep, but with the right strategies and support, your children can take that crucial first step onto the property ladder.

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