You only have to open a newspaper, turn on the TV, or do a quick Google search to see the latest news on the growth of property prices along the east coast. While Sydney is grabbing the headlines, more recently the Gold Coast has streaked ahead, with a huge growth in prices being attributed to the upcoming Commonwealth Games.
All this growth in property prices has a huge downside as well, making it extremely difficult for first home buyers to break into the property market, as they are increasingly priced out of the market.
As property prices continue to rise, it’s becoming increasingly difficult for first home buyers to break into the property market.
We’ve had a lot of interest recently from parents who are wanting to help out their children financially, to give them a leg up into the property market.
There are a few different ways in which a parent can assist their children buy a property. The most common ways being to ‘gift’ the funds, or to act as a guarantor.
While providing money to your children as a gift can seem like a great idea and an easy way to help them out, there are risks involved in this more unofficial method of assisting them, especially if you are wanting this money paid back at some point. In most cases only a verbal agreement will exist between a child and their parents, which may not be enforceable if the relationship becomes strained.
There are alternatives to simply gifting funds to your child though, two of which are a family equity loan, or acting as guarantor on the loan.
Family Equity Loan:
A family equity loan involves parents using some of the equity that is available in their home to guarantee to guarantee the home loan of their child.
This type of loan is much more formal than simply gifting funds to your child and can help your child secure a home loan, while also being less risky than going in as a formal guarantor to their loan and risking any of your funds.
Going Guarantor on a Loan:
An alternative method to gifting money to your children is to act as a guarantor on their loan.
This is the most formal method of providing assistance to your child, in that you are formally linked to their home loan, except for that fact that your are not required to make any repayments. You will become responsible for making repayments though in the event that your child defaults on the loan. You will become liable for the amount of the guarantee.
The guarantee you make can be limited to a specific amount, rather than the full loan amount. The lender will then take a mortgage out over the your property for the guarantee amount.
If you are looking to go guarantor on your child’s loan the lender will in most cases require you to obtain independent financial and legal advice prior to accepting the role of guarantor as you need to be aware of your obligations under the loan.