The goal of many parents is to make sure that our kids have an easier time of things than we did. That being said, when it comes to the property market, that is almost an impossible scenario given the conditions and challenges that new home buyers are up against in the modern market.

Whilst interest rates are at an all-time low, the price of property has skyrocketed in comparison to years gone by. Most baby boomer parents purchased their first homes in the 1960’s and 1970’s where average property values where around 400% of annual income. Many boomers recount tales of their first property purchase and when compared to the average prices seen today, it seems almost laughable. Whilst many people say the average young Australian will never own their own home, much can be done by parents and relatives to assist young people in getting into the market.

There are many ways in which this can happen, ranging from gifting money, through to a formalised and documented parent to child loan. This article seeks to explore the various options available for parents to help their children achieve home ownership success.

1. Gifting Money

For those that are lucky enough to afford it, gifting money to a child to help them purchase a property is a straightforward way to give assistance. By gifting money, you may be helping them lower their overall mortgage to a level that is affordable or giving them a head start on a home loan deposit, that may otherwise take years and years to save.

Where possible, this is a great way to help your children secure their first property. There are minimal legal and tax implications and the process is very straight forward.

However, as with any large purchase or investment, there are some risks to be considered. If the money is given as a gift and the child has a partner or spouse, this may be considered a joint asset should anything go wrong for their relationship in the future.

It’s always best to speak to a lawyer when making these types financial decisions to see what options you have to protect the money you are gifting to your child.

2.     Parental Loan

A Parental Loan is a formal legal agreement where a parent provides a loan facility for their child. This is a legally binding contract and is administered by a third party. This type of loan usually has the same types of considerations that bank loans have, such as a set term, repayment amounts and interest rates, however this type of loan has the flexibility to have more favourable terms that would be offered by a bank or lender.

By entering into this type of agreement, a parent may be able to provide their child with the capacity to purchase a home with very favourable terms, whilst still protecting their own assets and gaining a source of investment income. Also, should your child default on the loan in a major way, you will have a mechanism to reclaim your money through the standard debt collection channels, however there is always the risk of this putting additional strain on a relationship.

3.     Family Guarantee

If your child has a consistent income, you may be able to strengthen their loan application with a family guarantee against the loan. In this case, your own assets can be used to provide security against the loan should your child not be able to make repayments. Also in this case, you will be responsible should your child default.

One of the major benefits of this type of assistance is that it can be short term. Lenders will most likely require this type of security until the LVR of the loan is less than 80%, which is where the property itself can be a guarantee against the loan amount.

4.     Co Investing

An option some may wish to consider is co-investing. Many parents are now investing in property with the children as a way to utilise their assets whilst not having to be solely responsible for repayments. Many arrangements exist where parents will put down 50% of the property value as a deposit with the remaining loan amount being serviced by their kids.

This has many benefits, as the parents can gain from increases in the property value whilst kids can service the ongoing mortgage and gain some ownership, even though it is shared, over their home. This is also a great way to help lower the ongoing repayments for children in servicing a home loan and allowing them to purchase a quality home with manageable repayments.

In summary, there are many options available to parents who are wanting to help their children achieve home ownership success. Each option is different, and not right for everyone. By being open and honest, and laying everything out on the table early on, you could help your child take a huge step forward. Some caution must be paid, as these arrangements sometimes don’t always work out, however by discussing your options with an experienced mortgage broker, you will be able to find the option that works best for both yourself and your children.