With Australian property prices skyrocketing over the past few years, many of us are left wondering how our children will be able to afford a home of their own. Options are slim with some millennials now choosing to rent for a longer period or move to a completely new area.
A growing number of parents are now assisting their children to enter the housing market by providing part of the equity in their property as security. Have you considered this option for your family? Here’s what you need to know.
How does it work?
As you may know, buying your first home can be incredibly stressful. If you want to help your child but are not in a financial position to contribute funds, you can use your home as equity to make their dream a reality.
Saving for a 20% deposit is a daunting thought for many young buyers. If their loan exceeds 80% of the bank’s valuation of the property they are purchasing, the Lenders Mortgage Insurance (LMI) can equate to a very hefty figure. By using your home as equity, they can avoid LMI and minimise costs.
What are the risks?
Although using your home as equity may save time and money, there are also risks involved if there is a loan default. Your child will still need to have the capacity to repay the loan using their current income – unfortunately, there’s no getting around this.
By using your property as equity, you will be deemed a guarantor. It can be a risky move that could leave you in financial stress if your child runs into financial difficulties down the track. Before making any decision, ensure that your child can comfortably repay the loan and other living expenses.
How to get help?
Providing your children with equity through your own property is incredibly useful for their investment if you have confidence in their financial position. Your support will help them break into the market and start building their own equity, as long as they can keep up with the ongoing cost of being a homeowner.
If you are curious about how this may look for your family, the team at APS Mortgage Broking are here to help answer your questions. Our brokers have over 30 years of experience and our service is completely free! Learn more here.