How to Help Your Adult Children Purchase Property

Many parents can attest to wanting to do anything they can to help their kids — including being able to purchase a property. There’s no doubt that the recent triple whammy of the property boom, increased cost of living and rise in interest rates has placed even more pressure on young adults to live the great Australian dream.

If you’ve got adult children, you may wonder how you can help your kids purchase property without falling into the financial deep-end yourself.

We uncover some of the best ways that you can look to help your children buy their own property below.

1. Gifting children housing deposits

One of the most common ways many parents help their kids into their first home is to gift them a deposit. This is a straightforward way to help out, but it isn’t without risk.

Firstly, you must be financially able to outlay a significant amount of cash.

Secondly, a gift is just that — a gift. Without a written agreement, there’s no guarantee that the funds you gift will end up being put towards the house deposit. This is a particular concern for children in relationships, where half of the deposit could leave if the relationship breaks down and the spouse leaves.

Thirdly, gifting lump sums of cash can affect your pension entitlements if you’re of the age to receive the age pension. Services Australia sets out an allowable disposable amount you can gift annually. Bear in mind that if you have multiple children and intend on helping every child with their housing deposit, the limit sits at $30,000 in gifting over five financial years.

Lastly, giving your children money in a hurry won’t necessarily guarantee that they can put their deposit to use immediately. Many lenders in Australia exercise a ‘genuine savings’ rule, which typically states that the borrower must have held or saved the funds for a minimum of three months before using them towards a home deposit.

2. Acting as a guarantor

If you don’t have the cash assets to be able to provide a lump sum for the home deposit but do have other financial assets behind you (notably a property of your own), you may have the option to act as a guarantor on your children’s mortgage.

Many parents exercise some nervousness around ‘going guarantor’ on their children’s home loan, as it ultimately leaves them responsible for paying back the loan if their children cannot. For peace of mind, it can be a good idea to access legal or financial advice and guidance before becoming a guarantor — going together with your child is often the best way to approach the process. This enables transparency and understanding from both sides of the equation.

3. Buy a property together

Instead of providing your kids with a handout, you could give them a hand up; often, this looks like buying a property together. The benefit of this approach is that you would gain 50% of the ownership over the property, potentially adding to your investment portfolio. The downside, of course, is that with your name on the title deed, you open yourself to tax exposure such as Capital Gains Tax liability — especially if you intend to transfer your ownership over to them eventually.

Another consideration for retirees looking to buy property with their children is whether they are self-funded retirees or accessing a level of government benefit. The Age Pension and other government entitlements and concessions are often subject to asset and income testing provisions. Adding an investment by way of property ownership could mean your assets or income exceed the allowable caps.

Protecting your wealth while providing property purchase assistance

Getting your kids ahead shouldn’t be at the expense of sending you backwards. Adopting risk management strategies should be a key part of your financial framework, regardless of your investment decisions. Two important risk management steps to consider which may help protect your wealth while also helping your children are:

1. Put wealth protection policies in place

Personal insurance, such as Life Insurance, Total and Permanent Disability (TPD) Insurance, Trauma Insurance and Income Protection, can be a viable and reliable means to help protect both yourself and your children when purchasing property.

2. Access professional financial advice

Regardless of which method you choose to assist your children, there will naturally be a complex web of flow on effects — whether it be to your superannuation, liquid assets, income, government benefits, taxation, estate planning or retirement goals.

As mortgage professionals, we are experts at helping Australians purchase property. At pmwPlus, we have the added advantage of accounting and financial planning expertise, so our team are adept at understanding the complexity and sophistication of personal finance. We have guided many Aussie parents to help their children step over the threshold of their own homes. With a deep understanding of the finance landscape and the government’s entitlement system means that we can help you find the right solution to make your children’s great Australian dream a reality.

If you’re keen to pick our brain on the best way forward for your family, then please do not hesitate to pick up the phone. We would love to help!