As grandparents, when we leave this world, we naturally want to do so with the peace of mind that our children and grandchildren are settled, happy and financially secure.
After all that’s the great Australian Dream, right?
For many seniors, this involves seeing them becoming homeowners, just as they were able to do at a similar age back in the day.
However, for an increasing number of Gen Z and millennials, home ownership is nothing but a pipe dream at the moment, given that the median house price in capital cities across Australia has recently topped $1 million.
Clearly this is a cause for major concern. But as a grandparent what can you do?
In this article we will outline 7 ways you can help your grandchildren buy property. Take heed of these steps and it should set them well on the road to buying their own home.
Teach them well
Everyone understands that creating a long-term strategy can be difficult, but if you teach your grandkids well, then they are more likely to adopt habits that will get them in the mindset of saving up for a house.
It is never too early to start this, but if you make your grandchildren want less that is a very good thing to do.
Don’t be preachy or harp on about your ‘experience’. Instead instil common sense into them. Also encourage them to make wise choices. Teach them about the value of money and inspire them to save money, through compound saving.
The best way to do this is to lead by example. Show them these important lessons through your actions, not just words, because if you do, they are more likely to take them forward with them in life.
Arrange an appointment with a financial advisor
As soon as your grandchildren start working, it is worth arranging an appointment for them with a financial advisor.
Doing so can set them on the path to generating more wealth and income through a strategy of savings and investments.
This in turn could help them reach their financial goals quicker, and will undoubtedly put them in a more secure position when it eventually comes to buying their first home.
Contribute to their deposit
If you are able too, one of the easiest ways you can help your grandkids buy a property is to contribute to their deposit.
Not only is this a very kind and considerate gesture, but it can also fast-track the process for them.
Today, many banks and financial lending institutions will not entertain the thought of giving you a mortgage if you don’t have a 20% deposit.
This means that if one of your grandchildren wants to buy a property for $500k, then they will need to have a deposit of $100k.
Even if they were able to save $10k a year, it would still take them 10 years to save that deposit up, after all their other expenses have been taken into consideration.
Whether you do it as a straight up gift, or as a loan, if you can contribute some extra funds, you may literally be able to cut this timeframe in half.
Offer them a family guarantee
If you don’t have an excess of funds to contribute, another thing you can do is offer a family guarantee that uses your property as security against a loan.
The benefit of doing this is that you do not have to outlay any money initially and your entire house won’t be at risk either.
Typically, the guarantee is capped at a certain amount, which tends to relate to the value of the property your grandchildren might want to buy. Both the new property and the loan also remain solely in your child’s name.
For this to happen, first homebuyers will need to demonstrate they can meet regular loan repayments.
Should they default at some stage, then you will step in as a home loan guarantor as explained by Joust.
If this happens, for example, due to illness or loss of employment, it is worth having a contingency plan in place to cover this unforeseen circumstance.
One upside to giving a family guarantee is that in a few years, once your grandchild’s house price has increased in value by a certain amount, you can request for the guarantee to be released.
Let your grandkids live with you – with conditions
It’s a sign of the times that many children cannot afford to move out of home as soon as they hit adulthood.
In fact these days, given the high cost of rent, it is not uncommon for children to stay with their parents until well into their forties! Especially if they are single.
To help your grandchildren realise their dream of home ownership quicker, you might consider allowing them to stay with you – but with conditions.
This could be that they pay you a board of $200 a week, of which half of it could go towards building up their house deposit.
By ‘boardvesting’ like this, it will allow your grandkids to save for a deposit sooner and will ensure they don’t pay off someone else’s mortgage, via rental payments, than their own.
If they do come and live with you, just remember, they are adults. So don’t treat them like they are children and let them live their lives without too strict rules or judgement.
If you are unable or not willing to provide your grandkids with a loan or gift, you can always consider co-buying a property with them.
A great way to help them get onto the property ladder, buying in a joint venture will not only increase your grandchildren’s borrowing capacity, it will also help them achieve a bigger deposit.
The good thing about this option is that it is pretty much a win-win, as you will also be accruing your own wealth with what would essentially be an investment property for you.
Again, this strategy does have elements of risk, as it pretty much relies on your grandchild’s ability to make repayments. So you will need to be very confident that they can do so before committing to such an arrangement.
Once you part-own the home, it is important to lay out some ground rules in terms of whether any kind of renovations can take place, and if so, at what cost and to whom.
Be sure to identify how this would affect your investment too.
Find them a good mortgage broker
When they are in a position to buy it is worth helping your grandkids find a good mortgage broker and buyer’s agent.
Both of these professional services can end up saving them tens of thousands of dollars through their expertise, contacts and experience. As well of course as securing their dream home.
We all want to set our grandchildren up for happiness and success, and one of the key ways we want them to achieve this is through home ownership.
Whilst it is more difficult than ever for young people to buy their first home, if you are able to follow the steps above you will give them every chance of achieving their dream in a much quicker timeframe than would otherwise be possible.
That said, some of these suggestions could potentially impact your grandchild’s ability to receive the first home owner grant. So, just to be on the safe side, it may be worthwhile speaking to your accountant, or financial planner, to seek clarification.