Helping your children get on property ladder

Becoming a property owner for today’s first-time homebuyers is not as easy as it used to be. During the ‘80s and ‘90s, it took young people only a year’s worth of savings to acquire a deposit for their first property purchase, whereas nowadays, it takes 13 years on average!

Faced with these difficulties, more than half of first-time buyers need their families to help, and they mostly turn to their parents and occasionally grandparents.

Here are several solutions for helping your children get on the property ladder and become independent.

Giving your children cash

Not many parents are able to set aside enough cash to simply buy their children a house. Even if this is an option, most parents would rather have their children be financially independent and capable of taking on the responsibility of buying their first home.

This is why most parents opt for offering only a part of the cash as a financial assistance. If this is the case, your children might get a better mortgage deal. The rule usually is: the larger the deposit, the better the mortgage rate. For instance, a typical deposit today is around 25% of the new property value, but even a 10% deposit enables a much wider choice of mortgage deals.

In some cases, the parents’ downsizing from a large family home may coincide with their child’s first home purchase. In that situation, some parents might decide to forward the excess money to the younger generation and decrease risks of inheritance tax.

In other cases, ageing parents choose to sell their home and a move to an aged care home or a retirement community that can provide them with great social opportunities, wellness and medical care. This is how the older generations maintain their own security and senior age comfort, but are still able to give their children a hand.

Home mortgage solutions

For parents who have a large amount of equity in their home, there’s an option of mortgaging it and giving the money to their children for purchasing a home. There are certain restrictions on parents’ age, especially if they’re retired, but there are special interest-only terms that can be granted to older borrowers.

Helping without borrowing

For parents not willing to get into debt, helping their children is possible even without borrowing money. This essentially means that their overall income will be accounted for along with their children’s.

By opting for a guarantor mortgage, parents’ income can potentially bring in more cash. Nevertheless, as a guarantor, the parent must consent to cover any monthly mortgage payments in case their child falls short.

In a joint mortgage deal, children can get the money they need with the parent becoming a legal owner of a part of the property.

If the children opt for an offset mortgage, parents are the ones who are offered a flexible payment: a part of their mortgage can be paid off either in regular payments or as a lump, but they can still back out down the road if circumstances change.

When deciding on the best option to help your children purchase their first home, don’t forget that there are always certain risks involved. Pick the most affordable one for you in the long run of at least five to ten years and get counsel from a professional, so both you and your children can get the best out of a mortgage deal.