For our children, the reality of buying a home is becoming more and more unrealistic. But if you’re already financially secure, there are ways you can help give them the head start they need to secure their future.

The growing wealth divide

It’s one of the small ironies of life. You finally get to a point where you feel more financially secure. Then you realise your kids have never had it so tough.

You’re not alone. While it’s always been challenging to get started in life, the government’s latest HILDA survey1 confirms there is a growing wealth divide between the older and younger generations.

In large part, this is due to the housing market. The 2017 report finds that home ownership for those aged under 40 has dropped to 25 per cent, down from 36 per cent in 2002.

How will the cost of living impact your kids?

The table below uses data from Budget Direct, 2014

Average weekly income 2010

Average weekly income 2030

$961.48 ($1061.28 – today’s equivalent)

$2,511 ($2,815 – today’s equivalent)

Average house price 2010

Average house price 2030

$595,745 ($657,582 – today’s equivalent)

$3,388,800($1,744,761 – today’s equivalent)

Average petrol price per litre 2010

Average petrol price per litre 2030

$1.27 ($1.40 – today’s equivalent)

$3 ($1.13 – today’s equivalent)

How you can help out

If you want to support your children financially, not just emotionally, helping them buy their first home can be great idea.

Before you commit to this idea, you need to carefully consider what you can afford. While the money for a deposit might help your children, it’s unlikely to make anyone happy if you jeopardise your hard earned retirement savings.

Making promises

One option is to become your child’s guarantor – to use the equity in your home as additional security for their home loan.

It’s a way of promising the bank that if your child fails to repay their loan, you will do so in their stead. The big benefit for your child is that it reduces their loan to value ratio. This can reduce or even eliminate the need for them to pay Lender’s Mortgage Insurance.

At the very least, it means they won’t have to save up such a big deposit. Which will speed up the time it takes them to get into a new home.

Like all big decisions, this one shouldn’t be taken lightly. If your child is unable to make their loan repayments, and you don’t have the money either, you risk losing your own home.

There are special lending criteria that apply to family guarantees – and you’ll need to take into account your own retirement needs and plans.

The power of two

Maybe you have some spare cash? In this case, you could use the equity in your home to help buy a house in partnership with your child. This means they aren’t the only one repaying the loan.

Of course, this comes with its own risks. Your child (and their partner) might have different ideas about what to do with the home. Or, they might end up separating down the track.

Even though it’s your child we’re talking about, it’s still important to set some ground rules first and put them in writing.

Keep in mind if you sign as a joint borrower, you’re equally responsible for the entire home loan. As such, you must make sure it’s repaid – even if your child ends up defaulting.

Investing in their future

When your child is still a teenager, it can be worth using the equity in your home to buy an investment property for them.

Again, this isn’t something to be taken lightly. If you a gift them the property, there are significant tax consequences, including stamp duty and a hefty capital gains tax.

There is also your child to consider. Will it provide them with the skills to handle other challenges in life? Will they learn the true value of money? You might find it’s better to use the equity to help with their education costs.

If you do end up helping them invest in a home, there are ways to protect the purchase – and their future. You could simply keep the property in your name until they’re old enough (and mature enough) to really make the most of it.

Talk to an expert

Whether you become your child’s guarantor, buy an investment property in partnership, or use your mortgage in other ways – it’s important to seek out legal and financial help.

Talk to your mortgage specialist, or get in touch with us to arrange a free financial planning consultation.

Important information

1The Household, Income and Labour Dynamics in Australia (HILDA) Survey. Go to www.dss.gov.au

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

(c) National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence 230686.

Want to keep exploring?

Other life moments

​How to build and use equity in your home

If you're thinking of investing, increasing the frequency and size of your home loan repayments is a good way to increase your equity.

First home owner grant (FHOG) — the basics

A state-by-state and territory guide to the ever-changing First Home Owner Grant (FHOG) scheme. Find out how much are you entitled to.

Planning for retirement

Making your post-work dreams a reality takes careful planning, tracking – and money.

After more?

Home loans

NAB offers flexible home loans to suit you whatever stage you’re at. Buying a home, investing, renovating, refinancing.

NAB Reward Saver

Grow your savings faster with bonus interest for regular deposits and no withdrawals. View disclaimer 1

Super strategies

Simple strategies to help you increase your retirement savings. Learn how to boost your super.

Let's TalkWe're ready to help you

Call 13 78 79

Mon-Fri 8am - 7pm (AEST/ADST)
Sat-Sun 9am - 6pm (AEST/ADST)

Talk to an expert
Enquire online