How to help your kids buy a house

If you guarantee a loan for your adult child, you’re responsible for paying back the entire loan if the borrower can’t.

Think carefully about your own finances, make sure you understand the contract and don’t be pressured into this, Whittaker says. And if your child runs their own business, the risks grow, because plenty of businesses fail, he adds. 

If you do decide to become a guarantor, you have every right to insist on transparency when it comes to your child’s weekly budget. “The key here is transparency. Go to the lawyer together, and make sure everyone is on the same page,” he says.

If you’re in the financial position to gift your child a deposit for a property, the written agreement must demonstrate that all parties knew what they were doing. 

Remember that a gift means no strings attached. Of course, if your child’s married and the relationship breaks down, half of the deposit money may walk out the door at that time, Whittaker says. 

Also, bear in mind that a financial gift may impact the aged pension, so understand the ramifications of gifting money.

If you decide to loan your child money for a deposit, the usual approach here is that it is payable on demand. So if your circumstances change, you can get the money back.

The key here is careful documentation that includes specific repayment milestones and detail about whether the loan will accrue interest. 

Your loan will form part of your child’s matrimonial assets if they are married. This assets could then be divided up by the court if your child’s relationship breaks down, which may not be in their best interests. 

A loan should form part of your Estate planning, and you should also lodge a caveat over the property, Whittaker adds.

While not an option for everyone, giving adult children rent-free accommodation to help them save can be a great way for parents to step in. This could help your children save around $500 a week in rent and outgoings, or even more, Whittaker points out.

This savings boost can help your children save for a deposit, and you could negotiate some assistance around the house in return. 

Buying a house with your child and owning half of it sounds logical, but Whittaker warns that adding your name to the title of the property means it will be considered an investment, and therefore be subject to tax obligations.

Joint ownership means putting your name on the title deed, which brings with it capital gains tax exposure and impact on the pension, he explains. This might work for self-managed retirees, but make sure to get financial and legal advice, whichever route you take. 

As well as protecting yourself financially, there are other considerations, too. If you're planning on going guarantor, it pays to do your research and understand what’s involved before making the leap to ensure you know what you’re getting yourself into. 

For example, there’s the pre-purchase building inspection, conducted by a qualified inspector. 

This inspection will cover everything from faulty roofs to rising damp and cracks in the wall, and will include information on whether these faults can be repaired, and what caused them. It should also include a cost estimate for each of the repairs. 

Rapid Building Inspections project manager Heidi Richardson says: “Undertaking a pre-purchase building and pest inspection on a potential property can uncover and document hidden (and sometimes obvious) flaws or pest concerns, which provides parent guarantors with increased confidence that their investment is safe.” 

The pre-approval process to ensure your adult child is able to secure the loan is an important first step. This process can take some time and effort, and may even require a year or so of solid savings to demonstrate to the bank that they can service a mortgage.

Pre-approvals are intended to be a guide that the application fits the lender’s criteria. The purchaser will still need to obtain a full, unconditional approval before committing to a property purchase.

After exchanging the contracts and paying the deposit, the solicitor or conveyancer will continue to work in the background to prepare for settlement.

This process includes signing the transfer document, to be given to the lender at settlement, and registered with the Titles Office in your state to ensure the change of ownership is recorded. Applying for financial approval from the lender to ensure all finances are in order for settlement is also crucial at this time. 

Stamp duty is a state government tax on property sales, which will apply to a purchase. Stamp duty is payable within a specific time period after the settlement date, which can very between states.

Your solicitor or conveyancer will usually arrange for this to be paid on your behalf during the settlement period.

Other costs will include insurance, just in case the worst should happen, moving costs, the loan application fees, council rates and mortgage registration or establishment fees, which also apply.