Being a Millennial means constant jokes at your expense about buying smashed avocado instead of a first home. But the market is tough. Living prices are high and saving for a deposit while renting can be hard going. Plus, sometimes your kids really do just want some avo on toast without a side of judgement.
You might be in a position to lend a helping hand. Perhaps you’ve built up a stack of home equity and can declare the bank of mum and dad open for business. It seems like a kindness – and it probably is – but you should get all the facts before you let the kids start withdrawing.
Let’s weigh up the possible options for buying a house jointly with parents.
1. Gifting a cash deposit.
Not every family is diving into a money pit Scrooge McDuck-style, but even if you can afford to fork out the cash, it may not make your child’s first home a done deal. A large cash gift is a simple way to get a deposit together, but it doesn’t show a lender they can save.
Evidence of regular contributions to a savings account will do more to prove to the bank that they can manage regular home loan repayments on their own.
2. Drawing on parents’ equity for a home loan.
The bank of mum and dad might come in the form of a redraw from or remortgage of your own property. That means you can use the equity you’ve built up to invest in your kid’s first home.
How you use that equity will depend on your individual circumstances. As in option 1, you could put the full amount towards a deposit or loan as a gift. Or, you could use it to re-invest as a co-owner in their first home.
3. Acting as guarantor on your child’s home loan.
Guaranteeing a (grown-up) child’s borrowing can help them secure a home loan with only a small deposit, and it can be a way to avoid lenders mortgage insurance.
But it’s a risky strategy. If the borrower (that’s them) defaults on the loan, the guarantor (that’s you) is legally responsible for the payments. Your ability to take out a loan or other credit for your personal needs can be seriously compromised, which could leave you financially skewered in a worst-case scenario.
Be sure to speak with your solicitor before you sign, so you enter the agreement with a real understanding of what’s involved and what will happen if your child can’t make their repayments.
4. Agreeing to be a co-buyer or “tenants in common”.
As co-buyers, your child will own a portion of the property and you’ll own the other bit. Being tenants in common means you can own different percentages, so they might buy 75%, with mum and dad making up the rest. It also means the balance of the property doesn’t automatically pass on to the other owner(s) if, touch wood, something should happen to them.
Taking on financial responsibility for another property isn’t everyone’s idea of a quick solution but it does offer the opportunity to grow equity and secure an investment. Drawing up an agreement about managing shared costs and responsibilities can help everything run smoothly.
Be aware, though – paying off a property is more fun for a starry-eyed 20-something than a parent nearing retirement age. It’s good to have a plan mapped out, so they can take on the whole loan once they’re able and you can relax.
If your kids are lucky enough to have access to the bank of mum and dad, make sure they use it wisely. Do the legal legwork to protect everyone involved and be sure you understand the possible outcomes of each option. Helping your child buy their first home is a generous undertaking and a big financial commitment – do it wisely.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.