New Trend Alert…Parents Buying Properties For Their Children

Buying property for childrenWith the property market on the rise, a new trend has emerged for increased numbers of parents buying properties with or for their children. As a real estate agent and parent who personally intends to help my own children with their future housing, I have a very good insight into why so many people are going down this path.

Primarily, with the market recovering so quickly there is good reason to fear that if left too long, the property market will become unaffordable for first home buyers. If your children don’t get a foot into the property market now, they may eventually be forced to move out of area. In the area I sell and live, the Northern Beaches of Sydney, housing is already very costly…so the thought of waiting for another 5 or 10 years of growth is quite daunting and could eventually force your children to move to cheaper outer suburbs or even to regional areas where prices are dramatically less. In order to keep the kids close by, it is a good option to help them get a foot in the market sooner rather than later.

Another factor which is further influencing this trend right now is the ceasing of the first home buyer grants for established properties. Government grants used to be quite attractive but ever since the changes to the grants, first home buyers have been set back which has put even more pressure on parents to financially contribute.

There are very few parents that can afford or would be willing to buy properties outright for their children, so most people are contributing in the following ways:

1. Parents are buying investment properties with the intention of allowing their children to move in for a reduced rent when they get older.

2. Parents buying jointly with their child/children as a combined investment with the child/children residing in the property.

3. Parents going guarantor for their child’s loan.

While these options can be very beneficial, there can be some risks involved you need to consider. These are:

  • If you are going guarantor, you should be aware that if your child defaults on the loan, the bank can legally ask you to pay the loan out in full. Should you not be able to pay this your assets may be sold to pay for the cost of the property. This is a pretty scary thought, so if you wish to limit the risk it may be worth considering splitting the loan, with one part of it not involving you and the other (smaller) part of it being guaranteed by you.
  • If you intend to lend your child some money for the purchase of a property, bear in mind some lenders will not consider this as a legitimate funds. Banks like to see proven evidence of personally saved funds as reassurance the regular repayments will be maintained.
  • If you decide to ‘gift’ your child money to contribute to their property purchase, this will ensure you don’t have any of the legal issues involved with being a guarantor, but you will give up any control over how the money is used.
  • If you choose to buy a property together with your child, this will allow you to use the equity in your own home as security, with the cost of the loan shared between you and your child.  Keep in mind that if they stop making their payments, the responsibility will be on you to cover their share.
  • A great option for enhancing your asset portfolio while also giving your child somewhere to stay is to buy an investment property and lease it out to them. This is a popular option for parents as their child helps cover the repayments by paying rent and the property is not at risk of being taken or halved (so to speak) in the case of a break up or divorce scenario. The downside here is you’re not helping your child buy their own property, unless you’re subsidising the rent so they can save for their own home.

Everyone’s circumstances vary so my advice is to chat to a mortgage broker and your financial planner prior to heading down the path of helping your child to purchase a home. It is great that there are so many people that are willing and able to assist their children. I think it is very admirable but to be on the safe side, before you help your children make sure you protect your own assets so there are no unhappy endings.

The Northern Beaches Property Specialist team has over a decade’s experience in purchasing property for clients and their family.

If you’re considering of purchasing a property for your children, please contact Tim Cullen on 0424 006 855 for a complimentary property valuation and Free Family property checklist.

Alternatively you can enquire via email by completing the form below:

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About Tim Cullen

Since joining McGrath Estate Agents 18 years ago, Tim Cullen has defined himself as a first class industry leader with an outstanding track record and rapidly growing client base. He consistently ranks in the top 50 agents nationwide in the Real Estate Business’ Top 100 Agents List, ranking as high as 21st in Australia. He is passionate about real estate and delivering premium results for his clients.

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