How parents can help their children buy a home

Sky-high property prices have left many young Australians feeling pessimistic about their home ownership chances. And as costs of living surge it’s become harder than ever to save up for the 20% deposit that banks like to see.

One way buyers can get around this problem is by asking their parents for help. It's common for family members to provide the financial support first home buyers need to break into the market, but what that support looks like will vary.

Below, we take a look at some of the main ways that parents can lend a hand when their child wants to take out a home loan.

While banks won’t rule out lending to borrowers with high loan-to-value ratios, they prefer to see a deposit of at least 20% of a property’s value saved up.

A larger deposit lowers your risk profile in banks’ eyes. It also decreases the amount of interest you’ll pay overall, plus eliminates the need to purchase lender’s mortgage insurance, which is a type of insurance that protects your bank in case you default on your loan. 

By providing part or all of the deposit, you can help your child overcome the largest obstacle to owning a home. You might be asked to provide a statement confirming the money was given unconditionally and there’s no obligation to repay it.

Another way parents can help is by becoming a guarantor, which involves putting up your home or other property as additional security for the loan. While lenders will happily accommodate this arrangement, there are risks you should be aware of.

As a guarantor, you’ll be liable for your child’s loan (or, more specifically, the amount you have guaranteed) in the event they are unable to meet their mortgage obligations. 

This could mean losing your property and potentially suffering further financial losses (if your property is not enough to cover the debt), so it’s recommended that you get independent legal and financial advice before making any decisions.

If the bank isn’t confident your child can service a loan by themselves, you can put your name on the application with them. This means both of you will be responsible for making regular repayments, and if one person is unable to then the other will need to cover the full amount.

When borrowing jointly, there are two main ownership agreements you can enter: joint tenancy and tenancy in common.

• Joint tenancy: confers equal ownership to both parties. If one party dies the other automatically assumes their share of the property.

• Tenancy in common: lets you decide how ownership is split. If one party dies, their share of the property becomes an asset of their estate.

Just keep in mind that if you already own a property, your child won’t be eligible for the stamp duty exemptions usually available to first time buyers. This can add tens of thousands of dollars to your upfront costs.

Parents don’t need to have cash on hand to help their children get on the property ladder — sometimes allowing them to live at home rent-free can be what they need to build up their savings themselves.

As paying rent can be one of the biggest impediments to saving for a deposit, removing it from the equation by letting your child move back home (or letting them stay if they haven’t yet left) can help them achieve their savings goals faster.

If you’re ready to purchase a property, be sure to visit our home loan comparison page, where you’ll be able to filter your search by rate and type.