Mortgage broker Loanscope shared how older Australians can effectively transfer their wealth to their children in order to help them get ahead when it comes to property.
Loanscope’s Emmanuel Guignard (pictured) said that rising house prices have led many younger Australians to resort to borrowing money so that they will be able to establish a property portfolio.
“Many older Australians have kids in this situation, or at least approaching it. Naturally they want to help, and transferring some of the wealth they have earned through their own property in recent decades seems like an obvious way to do this,” said Guignard.
One of Guignard’s tips for effectively transferring one’s wealth to one’s children is guaranteeing a child’s home loan using one’s own property.
“The size of the average mortgage these days is at record highs, meaning that getting a deposit required for first time buyers can be a challenge. One way to help with this is to get your kids to use the equity in their parents’ property as a guarantee on their home loan,” said Guignard.
“This can effectively act as part of their deposit (subject to terms from the lender, which vary significantly), and help them avoid Lender Mortgage Insurance (LMI) by increasing the size of the deposit to 20% of the purchase price.”
Another way would be protecting one’s wealth with a binding agreement, which is a legal document that explains how a couple will divide their assets should their relationship fail.
“A binding agreement can provide the flexibility to identify and protect the assets that matter most to you and can be tailored to ensure that your children inherit them. It could also potentially save you thousands in legal fees if this situation arises,” said Guignard, adding that having an experienced legal expert will be helpful as such agreements are legally complex.
The last tip involves helping one’s children in paying their HECS debt, as it can be quite financially limiting to many young adults.
“When it comes to buying property, this debt can restrict their lending capacity too, as the repayments will be considered by the lender when determining how much they can borrow for a home loan,” Guignard said.
“By eliminating this debt up front, you will be increasing the amount of money your child can borrow to buy a property, which could be critical to them securing a home in a rising market,” he added.
