Today it’s becoming far more common for parents in Australia to help their adult children buy their first home. Many young couples are turning to this option since breaking into the market is more difficult than it was in the past. There are actually several ways that parents are assisting their kids make this major step, and they are each becoming more common in Australian society.
Housing prices are increasing, as are parent loans:
Housing prices arerising at a rate of around 10% each year and many first-time buyers are feeling the pinch. This increase in prices is consequently making it difficult for young couples to purchase their homes or even make a down-payment. The result? In the past few years, 1 out of 3 first go-around homebuyers received an initial deposit from their parents! This trend is one that appears to be growing throughout Australia. Altogether, Aussie parents are contributing over $100 million annually to help their adult children establish themselves as homeowners.
While one-third of young adults will receive their shove from the nest in the form of a deposit, four-fifths are receiving some sort of financial support with the purchase of their first property. This assistance comes in the form of a home-loan, a loan guarantor or a deposit. Services like 1300 Home Loan are showing an increase by young couples in searches for mortgage brokers and home loan comparisons that refer to parents as guarantors. According to news.com.au, an incredible 80% of first-time home buyers are actually given some sort of financial assistance from mum and dad!
Lending and Giving:
One of the options a parent has is to buy a home for their children in their own name, and entrust it to them later. This way, they maintain control over the property. Eventually, ownership of the property will transfer to their adult children. However, prior to that point in time their son or daughter can live in the property. This strategy helps to protect your investment against potential divorce. At the point of transfer, the capital gains tax is applied.
Parents can also lend or give their children money to help with the purchase of a home. This amount might pay for down payment or be enough to cover the entire property cost. Parents do this at a risk – if the son or daughter’s marriage ends in divorce, some of the family’s estate could be lost.
Another popular option is for parents to treat the payment for the purchase as a loan. This option can help avoid the loss of the expenditure should the marriage be terminated for any reason. For a loan of this nature, it is of utmost importance to make sure necessary paperwork is complete. It may help if the parents maintain some sort of responsibility for the home, say in the form of a mortgage agreement.
It’s important to note that your superannuation is a retirement benefit available when you reach age 65. It may also be available when you meet other conditions. However, it is not for a property purchase for your children.
With the increase in real estate prices, there are many ways that Aussie parents are helping their grown kids get ahead. If this is something you’re considering for your own kids, take the time to look at your options, check out the restrictions, tax considerations, and advantages, and speak to the experts.
Comment