As the baby boomer generation begins to pass on their wealth, home ownership is becoming a key focus for many families. With the average home price in New South Wales at $1,184,500 - the highest in the country - the pressure is on for parents to help their children enter the property market. The cash rate is expected to remain at a 12-year high of 4.35% throughout 2024, further adding to the challenges for first-time buyers.

Over the past 15 years, home ownership in Australia has dropped from 70% to 67%. This decline is likely to increase wealth inequality, as owning a home is a significant way to build wealth. According to the Actuaries Institute, the wealth gap is now larger than it was in the 1980s, with the wealthiest 20% of households having six times the disposable income of the lowest 20%.

The Domain First Home Buyer Report 2024 estimates that it takes a couple aged 25-34 about 6 years and 8 months to save a 20% deposit for a home in Sydney, and 5 years and 5 months in Melbourne. During this time, many are either renting or living with parents.

So, should you help your children buy a home? Many parents would prefer to help when it’s most needed, rather than waiting to pass on an inheritance. However, it’s crucial that any support you provide doesn’t compromise your financial security. Here’s what to consider:

The Downsides of Cash Gifts

Gifting cash for a deposit or mortgage can be a straightforward way to help, but there are some potential downsides:

- Loan Verification: If the gift makes up all or a large part of the deposit, lenders may want to verify that the loan is serviceable and that the funds are indeed a gift, not a loan.

- Divorce or Separation: In the event of a relationship breakdown, the gift could end up being part of the assets divided between the couple.

- Tax Considerations: Generally, gifts made from natural love and affection are not subject to income tax in Australia.

Becoming the 'Bank of Mum & Dad'

If you decide to lend money to your child for a home purchase, it’s important to document the loan terms, ideally with the help of a lawyer.

The loan structure can vary depending on your goals. For instance, it might mirror a bank loan with interest and repayments, be repayable upon the sale of the property, or be managed as part of your estate.

Before lending, consider the possible complications, such as what might happen in the event of a divorce, if the property is refinanced, or if either party passes away. It’s important to hope for the best but plan for the worst.

Providing Security to Lenders

Using a family guarantee to help your child secure a loan is another option. This can allow them to avoid lender’s mortgage insurance, which can range from 1% to 5% of the loan amount.

However, acting as a guarantor means you’re on the hook if your child defaults on the loan. If you’ve used your home as security and can’t cover the loan, you could lose your home. It’s essential to assess the impact on your finances and make sure your retirement plans are not jeopardised.

Co-ownership

If you’re considering buying a property with your child, you can do so as joint tenants or tenants-in-common.

- Joint Tenants: The property is evenly split, and upon your death, your share automatically passes to the other owner(s).

- Tenants-in-Common: This allows for unequal ownership shares (e.g., 70:30). Your share can be distributed according to your will.

Regardless of the ownership structure, it’s crucial to have a written agreement outlining how the co-ownership will work, including what happens if one party wants to sell or if there’s a change in circumstances.

Utilizing a Family Trust

Another option is purchasing a property through a family trust. This can offer asset protection, and at some point, you may transfer control of the trust to your child without triggering significant CGT or stamp duty liabilities. However, it’s important to check the tax implications, including potential land tax issues and the impact of any foreign beneficiaries.

Reduced or Rent-Free Property



If you buy a property and allow your child to live in it rent-free or at a reduced rent, this can provide them with a home but won’t help them build equity or secure a loan. If you plan to treat the property as an investment and claim deductions, you must charge market rent; otherwise, the ATO may deny or reduce your deductions.

If you intend to leave the property to your child in your estate, ensure your will reflects this intention.

Before making any decisions, it’s advisable to seek professional advice to ensure that your financial security and future plans are well-protected.