With rapidly rising house prices in Australia, many first home buyers are looking to their families for help.
ME research shows that 20% of Australian families have provided financial assistance to help family members purchase their first home.* Here are some things to consider if you’re looking to give your kids a helping hand.
Charging interest on family loans
While the ‘Bank of Mum and Dad’ is not especially new, ME found 24% of parents are charging their adult kids interest — often as a means of imparting a life lesson about the value of money.
You may also want to consider having formal loan documents drawn up, so there are no misunderstandings down the track about repayments.
Acting as guarantor
Around 5% of first home buyers have parents acting as their guarantors. However, this brings with it noteworthy risks, particularly for older parents.
If the borrower defaults, the guarantor can be called on to pay off the entire loan — something that can leave parents financially worse off, while also causing considerable family friction.
Agreeing to be a co-buyer
ME found 14% of first home buyers purchased jointly with a family member — an option that can provide an opportunity for older parents to build equity in their child’s home. Importantly, boomer parents acting as co-buyers need to have an exit strategy so they’re not left working for longer just to help pay off their child’s home.
Encouraging co-buying between friends and siblings
By pooling resources, buyers can often afford a better quality property or a more desirable location. Running costs like rates and insurance can also be shared. In fact, ME research shows the increasing popularity of the teaming up of siblings (12%) or friends (4%) to buy a home.
But it is worth first home buyers having a co-ownership agreement in place that addresses every possibility — including what happens if one owner wants to sell up further
down the track.
DID YOU KNOW? The average loan amount for a first-home buyer has increased by 50% in the 10 years to 2016.†
Before you make any decisions about helping your kids purchase their first home, it pays to get advice from a qualified financial planner.
MTAA Super members can access financial advice through Industry Fund Services (IFS)‡ . Go here to find out more or call 1300 362 415 to make an appointment.
Members Equity Bank Limited ABN 56 070 887 679 Australian Credit Licence 229500.
‡ IFS Financial Planners are representatives of Industry Fund Services Pty Ltd (AFSL 232 514), which is responsible for the financial services provided by its representatives.
† First Home Buyers Association analysis of ABS housing finance data from April 2006 to April 2016.