The Bank Of Mum And Dad Post Covid-19!

 June 13, 2021

By  Chase Edwards

Young Australian Adults Rely On Their Parents To Help Break Into Today’s Competitive Property Market. More So Than Ever in Post Covid-19 Times.

A new survey reveals that parents are giving their kids financial help more than ever before. Not only with a house deposit, but also fuel, phone bills, holidays and everything in between!

The survey found that almost half of Australian parents provide financial support for their adult children. 40% letting them live rent-free and a similar percentage paying for their groceries. Now, I’m not sure about you; but all I seem to remember hearing growing up is “That Money Doesn’t Grow on Trees”! However, for Gen Z, it seems more and more Aussie Parents are lending a hand more than ever before.

The survey found that almost half of Australian parents provide financial support for their adult children, with 40 per cent letting them live rent-free and a similar percentage paying for their groceries, (all I seem to remember hearing growing up is that “Money Doesn’t grow on trees”) However for the next generation of young adults, it seems more and more Aussie Parents are lending a hand more than ever before!

According to a survey conducted by comparison platform Finder, one out of three parents help cover the cost of mobile phones, internet, and other bills, while one in five parents pay for their children’s vacations.

An additional 27% provided a home deposit loan or gift, 27% reduced rent, 5% acted as a guarantor on a mortgage, and 4% helped with mortgage payments.

The DFA figures show that the parents made up the ninth-biggest mortgage lender, behind Suncorp Bank. According to the researcher, the results are based on 52,000 household surveys.

Despite parent’s having the best intentions, buying a house for a child can come with some hazards. Among them are:

Helping our kids is what we do.
  • Tax consequences – How a property is taxed depends on whether rent is being charged. A child who pays rent can deduct these expenses, but if the property is sold, capital gains tax will be due.
  • Opportunity cost – Many parents may not be doing themselves any favours if their own financial well-being and security are compromised by their generosity. Relying on retirement savings to purchase a property later in life could be a decision later regretted.
  • Government benefits – If the property is owned by the parents, both the asset and any income will be included when calculating eligibility for Centrelink entitlements. The child can place the property in their name, and the excess over the gifting limit will be deemed for up to five years if it is placed in their name. As a result, the parents might receive fewer benefits.

Alternative options

There’s some good news too. Parents can support their children by buying a home and entering the property market, which in turn, enables them to learn and grow. Some of these include:

  • Gifting a deposit – Rather than buying the entire property, giving the deposit can sometimes be sufficient to help offspring obtain finance, with the child taking responsibility for repayment. It can also reduce financial stress on the parents, as well as ease Centrelink concerns.
  • Acting as guarantor on a loan – using the assets of your parents to secure your child’s mortgage.
  • Buying the property together – a deposit is typically provided by the parents, with the ongoing costs of the property shared by the parents and their child.

Having an understanding of your financial situation (credit rating, loan process) can make things so much more easier for you when it comes time to apply.  There are many loan options available to suits all types of situations. Keep in mind that everyone’s financial background will be taken into consideration when it comes time for application.

Put it in writing

These arrangements come with a range of legal considerations. There should be a formal and clear understanding of each party’s rights and responsibilities. Some of these include:

  • Who is responsible for ongoing maintenance and costs on the property;
  • How to proceed if either party wishes to terminate the arrangement;
  • If the child cannot meet repayments;
  • What will happen to the property when/if the child marries/divorces; and
  • What happens to the property when the parents pass away?

Create Your Own Portfolio Of Properties

This is about building up wealth yourself with a view to eventually helping your children. This way you keep control of how you pass it on to your child. Getting a head start; when the time is right will make things so much easier for all!

To sum it all up, whatever way you chose to help your kids, it is wise to keep some form of control over how you provide financial assistance. Whatever you decide, it’s always good if you can help kick-start their journey

As parents, helping our kids is what we do. Seeking professional advice can only help and make things easier for you.  Chase Edwards can help you explore the available options that available for you. This can help ensure that you find the solution that best suits your family’s circumstances. 

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