Helping your children buy their first home is an incredibly generous thing to do, but not necessarily a simple one. There are many options, situations, and issues to consider. The help you give must work for everyone involved.
Below are the most common ways parents help their children into their first homes:
- Gifting money (with no expectation that the money will ever be repaid);
- Loaning money (with some expectation that the money will be repaid);
- Acting as a guarantor (which means you could be called upon to repay a home loan if your child isn’t able to); and
- Buying the house together (with your names recorded on the title).
What will work for you will depend on your circumstances. However, there are a few things to think about:
- If you gift money to one of your children to buy a house, does this create an expectation to your other children that they will also receive one? Can you afford to do this without affecting your ability to enjoy your retirement?
- If your child is buying a home with their partner, any gifted funds may become relationship property and be split 50/50 if they separated. Is that acceptable?
- Gifts cannot be conditional. It is not a true gift if you have an expectation of it being repaid.
- Gifting large sums (over $27,000) will affect your eligibility for means-tested benefits such as resthome subsidies.
- If you want to loan the funds, be aware that banks don’t like borrowers owing other people money. The loan will most likely need to be interest-free and only repayable upon the sale of the property. As you will have no control over when the property is sold, it’s important to be okay with the uncertainty around when the funds will be repaid.
- If you agree to act as guarantor, how will this impact on your own future borrowing ability? Are you planning to buy an investment property or holiday home?
- If you decide to buy the property together, who will pay for outgoings, repairs and maintenance,management of the property? Can you exit the arrangement?
If you decide you would like to help one of your children – what’s next:
- Start the conversation early (ideally before they find a property). Have a frank discussion with your child about how much they’re needing and what the expectations are around repayment.
- Discuss with a lawyer what is the best way to document the arrangement (such as Deed of Gift, Deed of Acknowledgement of Debt or Property Sharing Agreement).
- Document the arrangement as soon as possible to avoid any delay with bank finance, as the bank will generally want to see evidence of the gift or loan.
Lastly, it’s good to be aware that you and your child may need separate lawyers.
For more information on how you can assist your children to buy their first homes, feel free to contact us at Convex Legal on 04 390 2123 or [email protected]