Applied Financial Planning

Helping the kids to buy property: Understanding co-ownership arrangements

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With soaring house prices in all Australian capital cities and many popular regional areas, more young people than ever are requiring support to enter the property market. The 'bank of mum and dad' has never been more popular as a way to help kids get their first step onto the property market ladder, whether to buy a first home to live in or a first real estate investment.

This paper looks at various options by which parents can assist their children and what should be considered in each case.

Financial assistance from parents often comes in the form of a loan or a gift to help with the deposit. According to a survey conducted by financial comparison site Mozo in July 2021, the average amount parents contributed towards property purchases for their children was a cool $134,200.

For parents who do not have the ability to raise that level of cash, an alternative has been to go guarantor for their child when they apply for a loan from the bank. According to Foster Ramsay Finance, in September 2021 the average family guarantee varied from $150,000 to $200,000.

However, it seems that parents who extend such generosity to their children may do so at their own risk. In June 2021, Digital Finance Analytics reported that first home buyers who borrow from the 'bank of mum and dad' are between three and five times more likely to default on their loans within the first five years.

Each of these methods of parental assistance comes with its own particular set of downsides.