Helping your kids buy property

Buying the first home is a massive challenge, but as a parent there are a number of ways you can help.

1.Family guarantee

If your child doesn’t have enough security for a mortgage, you could provide a family guarantee.  This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%. It’s also known as a guarantor loan.

This can be a temporary arrangement until your child has paid down the loan to an acceptable level.

Benefits: You only guarantee a portion of the loan.

Drawbacks: If your child defaults, your assets are at risk (to the extent of that portion).


When you give your child money but don’t expect it to be repaid, it’s considered a gift. You may need to sign a statement to say it’s a gift, not a loan.  Note if it is considered a loan your child’s  bank will need to account for the repayments to you, detracting from their borrowing capacity.

Benefits: You can provide financial help, possibly without the legal, tax or financial implications of a formal arrangement.

Drawbacks: If your child has a spouse and their relationship breaks down, the former partner could make a claim for the property.


3.Parent-to-child loan

A parent-to-child loan is when a parent lends their child money. This is a formal, legally binding arrangement, administered by an independent third party. At the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.

Benefits: You can set generous terms for your child, but your assets, savings and credit rating are somewhat protected as you are not the borrower.

Drawbacks: There are legal implications for your child if they have a spouse and the relationship breaks down, in that the spouse could try to claim some of the loan proceeds as an asset of the relationship to which they are entitled. There are also tax considerations for both parties.


4.Becoming a co-applicant

You can help your child secure a loan if you sign on as a co-applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets in its borrower's assessment.

Benefits: Your child can obtain a loan with a low income.

Drawbacks: If your child stops making repayments, you’re responsible for making them. If you can’t make the repayments, it will affect your credit rating.


5.Assistance in kind

If you're risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or conveyancing fees or help with stamp duty.

Benefits: You can give practical financial assistance.

Drawbacks: If the amount of money you provide is more than what your child ends up spending on those services, then the rest of the amount is subject to the terms of being a gift or loan (as above).


The above notes are only some of the issues to consider, make sure you're well informed about your options so you can remain in the best position to help your child become a home owner. You can contact your mortgage broker to discuss further to ensure the right financial arrangement for your family.

Integrity Finance Australia– Changing Lives

Daryl Borden, your Dingley Village Mortgage Broker, Ph. 03 9511 8883 ACL 392184