How to assist your children in purchasing property

Deposit gifting

Saving for a deposit is the biggest hurdle faced by most young homebuyers. As a parent, one of the best ways you can support your children in this process is by gifting them the money they need to get their foot onto the property ladder. It’s important to note that some lenders may require evidence of a great savings history before approving a mortgage. To increase the credibility of the deposit, consider putting the funds in an account with your child’s name on it three to six months in advance.

Providing a loan

If gifting isn’t an option, parents can also provide a loan to their children for the deposit or part of the purchase price. This option allows you to retain control over your funds and set terms for repayment with your child. You have the option to leverage the equity in your current home as a source of the loan, or you can seek a traditional bank loan. Using this approach means you can avoid having to pay costly Lenders’ Mortgage Insurance. It’s essential to have a written agreement in place, outlining the terms of the loan, repayment schedule, and any interest charged. This option can provide a great opportunity for intergenerational wealth transfer within families.

Going as guarantor

If your child is struggling to meet the lender’s borrowing criteria, you may consider going as a guarantor on their home loan. This option involves using the equity in your property to secure their loan. As a guarantor, you are responsible for any missed payments or default on the loan if your child is unable to make them. This option can be risky and should only be considered if you have confidence in your child’s ability to manage their finances responsibly.

Co-ownership

This option allows you to purchase the property together, sharing the costs and responsibilities of homeownership. As co-owners, both parties will have their names on the title and be equally responsible for any mortgage repayments or property expenses. It’s essential to have a legal agreement in place outlining each party’s rights and responsibilities, including what happens if one party wants to sell their share of the property.

Creating a Family Trust

Another option for intergenerational wealth transfer is setting up a family trust. A Family Trust is a legal entity that allows multiple generations of a family to pool their assets and investments, providing financial security for future generations. Trusts offer both tax benefits and asset protection, making them an attractive option for families looking to pass down wealth.

By creating a Family Trust, you can act as the trustee and maintain control of the assets while allowing your children to become beneficiaries. This structure allows for flexibility in managing and distributing wealth, as well as providing protection against possible future legal claims.

As a trustee, you have a legal obligation to effectively manage the trust for the benefit of all beneficiaries. Additionally, there is the potential for you to reap the rewards of a property that generates positive cash flow.