-Without Risking Retirement financial security.
In today’s challenging housing affordability environment, it is entirely understandable that parents and grandparents want to provide housing market help for their children or grandchildren. Help to gain a foothold on the property ladder. Whether through financial assistance, guarantees, or other support strategies, this is a proposition our advisers are asked to consider regularly. However, providing assistance requires careful structuring to ensure generosity today does not compromise your long-term financial security through retirement.
We frequently write about intergenerational wealth transfer and the importance of financial literacy. Before taking action to help family members into the housing market, we recommend the following process
- Stop to consider how it’s going to affect your own financial situation.
- Consult with your financial planner.
- Choose an appropriate strategy by which to provide the support to them. One that will work effectively for you in your later years; and that is financially sustainable in their life journey.
That doesn’t make you selfish, just prudent. There are effective ways to give your children or your grandchildren the boost they need. Ways that allow you to continue to enjoy a comfortable retirement with financial security.
Review your own financial situation first
Before you open a branch of the Bank of Mum and Dad (or the Grampies), make sure your own retirement needs are covered. Calculate your retirement income – superannuation, investments, Age Pension if eligible – and estimate your current and future living costs. Ideally, factor in an emergency financial buffer and plan for an extended life expectancy. Your financial adviser can help with these calculations.
Five options to help them take that first step on the homeownership ladder –
Once you’re sure you can afford to lend a hand, you can choose one or more of several methods to provide housing market help for children or grandchildren – without breaking your bank:
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Hand over cash towards a deposit
Saving enough for a house deposit is a tough challenge for most young people these days. A cash gift will give them a real boost. Make sure, though, that you only part with what you can afford, because you are unlikely to see that money again.
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Give them a loan
If you can’t afford to lose the income from the cash permanently, consider giving them an interest-free or low-interest loan. You’ll need to make it clear that it is a loan and not a gift. Have it legally documented.
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Become a guarantor
Another popular option is for parents/ grandparents to act as guarantors for a part of their ‘child’s’ mortgage. This will enable them to avoid paying for expensive Lenders Mortgage Insurance (usually required when the mortgage amount is more than 80% of the assessed value of the property).
The mortgage guarantee will usually be secured against your own home, so be aware of the fact that the lender will pursue you for repayment if your children default on their loan. In the worst-case scenario, you could end up losing your own home.
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Share the ownership
If you have substantial equity in your own home, or own it outright, banks will regard you favourably as a joint borrower with your child. This means that you could share the mortgage and ownership of a property you purchase together, as well as potential capital gains. Once again, it’s vital to have the situation properly documented, so get some legal and financial advice before you commit.
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Provide practical help
Even if you can’t give direct financial assistance, there are other ways to help them. You could allow them to live with you rent-free while they save for a deposit, or assist with the formalities of applying for a mortgage or First Home Owner Grant.
Know the Centrelink ‘deprived asset’ rules
If you receive a full or part Age Pension, you need to be aware that you can only make a gift of $10,000 per year, and a maximum of $30,000 in any 5-year period, if you want to avoid your gift being regarded as a ‘deprived asset’ for five years. This means that any amounts exceeding this will be counted as still being your assets when determining your pension eligibility, and when calculating your income under the deeming rules.
A loan to your child/ grandchild can affect your pension too, since it will be counted as an asset for pension eligibility and deeming.
Avoid damaging family dynamics when providing housing market help
Parents who have only one child/ grandchild don’t need to worry about perceived favouritism or unfairness, but where there’s more than one such child to consider, tread warily. In a multi-child situation, it would be wise to make it clear that similar help will be considered for all your children., It may be necessary for provision to be made in your estate planning.
It’s also worth hesitating before you buy your child a house outright, even if you can afford to do so. Handing it to them on a plate could have two detrimental effects-
- You will deprive them of the sense of achievement that will come from managing most of the cost themselves, and
- It may also set a dangerous precedent that prevents them from learning financial responsibility.
Get advice on helping family members with financial assistance to enter the housing market
Consulting a financial adviser before you make any decision will help you to –
- avoid potential pitfalls, and
- select the best purchase assistance method for your circumstances.
Our team at Continuum Financial Planners have considerable experience working with families to decide on how to provide housing market help top children or grandchildren, by –
- setting SMART goals,
- determining appropriate strategies, and
- implementing financial assistance that won’t break your bank – and provides sound outcomes for your family member(s).
To make an appointment with one of our experienced team –
- phone our office, on 07-3421 3456; or
- at your convenience, use the linked Book A Meeting facility.
(This article was originally posted by us in December 2025.)