Get the kids out of your home - and into their own
Discover how parents can provide practical help with their kids’ finances and support them towards living independently in their own home.
Let’s not beat around the bush: houses are becoming more expensive and the kids need help. But does this rule out affordable housing for Generation Y and beyond? Certainly not. While conditions may not be as easy as they were for previous generations and many young adults are still living with their parents, with careful planning, good budgeting and (maybe) just a little help from Mum and Dad, it’s an achievable goal.
For most adults, living at home is a short-term solution, giving them a chance to live rent-free and save money for their deposit. But if house prices continue to rise, their hopes of saving a deposit in a few years could be unrealistic. If you’re a parent who has adult children living with you for the foreseeable future, you might want to look at ways to get them into their own home sooner.
Sharing information about buying and saving for a home
A lot of wisdom about buying property seems obvious to homeowners. Having a deposit of 20% or more to avoid the costs of Lenders’ Mortgage Insurance (LMI), and making sure you have enough in your budget to cover stamp duty, conveyancing, building inspections and mortgage fees – all these things are important when you’re planning to buy. Your kids will have a much clearer idea of what to expect if you take the time to share some of the basics involved in buying a home.
The same applies to saving for a deposit. A young adult living at home and not paying for rent and groceries can get used to spending as they please. Some sage advice about sticking to a budget and setting savings goals could see them adopting money-wise habits that will help them live within their means, save a deposit and keep up with loan repayments when the time comes for them to buy a home.
Sharing your assets
Many young people want to find a way to buy that first property without help from parents.
With so many families facing the same difficulties in purchasing affordable housing, lenders and parents are offering different ways to give young people a helping hand. Here are some of the more popular solutions:
- Budgeting and saving – not very glamorous but teaching your children how to save will help them accumulate money and establish into good financial habits, especially if you get started while the kids are young
- Gifting money for a deposit – if you’re offering a lump sum to help with a property purchase, be aware that making cash gifts above a certain amount can affect your entitlement to the aged pension.
- Providing a family guarantee – this is a way of contributing equity in your home to allow your child to borrow more for their property without incurring LMI. Just remember that if the child defaults on repayments, your home could be at risk.
- Acting as a joint borrower – you can take out a loan together and contribute to repayments, perhaps with the understanding that they’ll buy your share in the future. It’s important to be clear about who is responsible for ongoing costs such as insurance, rates, repairs etc, and what happens to each person's share in the event of death.
- Parent-to-child loan services – this is a new type of arrangement for parents to lend children money for a property purchase without the problems that sometimes put stress on family relationships. The parent and child agree the finance terms, but the lender is responsible for the ongoing management of the loan.
No matter which type of financial support you’re considering, it’s important to consider all your circumstances and seek advice from financial and estate planning experts before making any decision.
The ups and downs of independence
Your child may be eager to take on the responsibility of home ownership and become independent without really understanding the commitment they’re making. Or they may be reluctant to leave the nest, knowing that they’ll need to be more self-reliant. In either case, parents have a vital role to play in supporting and guiding kids towards a positive experience as they buy a home and move out.
When they’re all set up in their own place and you’ve got the space and freedom you’ve been waiting for, you’ll find your life transformed! And you may even find that a little distance from your adult children will make you appreciate each other even more.
The information in this section has been prepared as general information only without consideration for your particular investment objectives, financial circumstances or particular needs. Read the full disclaimer.