5 ways to help your kids fly the coop - Harvest Financial Group

Interest rate announcement – April 2017

Today the Reserve Bank of Australia met to review the official cash rate. After last cutting rates in August 2016, the RBA have again decided to leave rates on hold at 1.50% this month. Nonetheless, we have seen some lenders starting to increase their variable and fixed interest rates and we expect others to follow suit.

Young people are being priced out of the housing market as property prices across most of Australia continue to rise, such as in Sydney and Melbourne where yearly growth is up 19% and 16% respectively. Well-meaning advice like, ‘buy where you can afford and rent where you want to live’ overlooks the reasons why so many young Australian’s want to have their own place: security, stability and a place to plan their future. So what can you do? For starters, here are the top 5 things you can do to help your kids afford their first home:

1. Show them how to budget and save

No one ever said buying a property was easy, but developing good budgeting and savings skills can be the difference between impossible and manageable, whether your kids are saving towards a deposit or making regular mortgage repayments. Helping your kids to understand their financial obligations by breaking down these cash flows into yearly, monthly and weekly periods, and then developing a regular savings plan should be your first step in helping your kids buy property.

2. Explain the real cost of buying property

Building a deposit and securing a home loan is one thing, but helping your kids understand the upfront and ongoing costs of buying a property is another. Overlooked expenses such as government, legal and strata fees, as well as ongoing utility and maintenance costs can be difficult to manage for an unaware home buyer.

3. Explore government initiatives

Your kids may not be aware of government initiatives, such as the First Home Owner Grant or Stamp Duty Relief, which aim to give first-time home buyers assistance in securing their first home. Helping your kids discover and apply for these initiatives can save thousands of dollars in the long run.

4. Make a financial agreement or gift

Gifting or arranging a family loan to help your kids build their home deposit will help them get into the property market sooner, reduce their borrowing needs (and therefore the interest that they would’ve paid on that amount) and may also mean they do not have to pay Lenders Mortgage Insurance. With any financial loans made between you and your kids, we recommend consulting a solicitor to provide written terms of repayments and schedules.

5. Be their Guarantor

As Guarantor, you can affix the deposit, part or all of your kid’s home loan against your own home. Your children still take full responsibility for repaying the loan, however, in the case that they default on the loan, the lender may require you to repay any outstanding amount. So why would you do this? Well, acting as Guarantor gives the bank additional security that the loan will be repaid, and therefore they may be more willing to grant your kids a loan or give a lower interest rate.