Climbing the property ladder

The fact that the Bank of Mum and Dad is Australia’s fifth largest money lender, when it comes to home loans, never fails to surprise. It’s amazing, isn’t it, to think that the collective mums and dads of the nation lent over

$90 billion dollars in home loans in 2019? But then, why wouldn’t they? Your kids owning their own home — their own castle — is part of the great Australian dream.

But dreams, like all financial matters, can easily slip into nightmares. If you want to help your kids hop onto the property ladder, we may be able to help you. You deserve to stay safe and comfortable in your retirement, and good intentions shouldn’t interfere with that. With the right retirement plan, you may be able to have it all.

Footing the bill for their foot on the ladder 

It’s a bit of an understatement to say that we are living in uncertain times. It may be years till we fully understand the human and economic cost of the COVID-19 global pandemic but getting onto the property ladder as a first-home buyer wasn’t easy before the pandemic anyway. One thing we can expect is that there’ll be even more pressure on retirees to help their kids financially.

Prior to the pandemic, just over 30% of retirees were willing to front the money for a first-home deposit, with 10% assisting with the repayments. Another 14% were willing to act as guarantors and put their own homes on the line. Those that struggled in that department offered help to others. Nearly half of Aussie grandparents helped pick up a new car for their burgeoning families, and around a third were helping with educational costs and ongoing bills.

Retirees will do anything they need to for their families. Many have been dipping into their precious retirement savings, tightening their belts by cutting back on their spending, and selling off hard-earned assets. Some are even putting off retirement for that extra scratch. But this is unsustainable.

Unreasonable risks for reasonable rewards

It’s going to be impossible to take care of your family’s finances if you cannot take care of your own.

Raiding your super and using your own retirement savings can put a stop to your future plans. Not only the major ones (the medical care and the retirement-ready renovations), but the ongoing costs of living too.

Becoming a co-borrower on a child’s mortgage puts you at risk if, for whatever reason, your child fails to make a payment. Becoming a guarantor not only puts your own home on the line but can affect your ability to take out loans for yourself.

Intergenerational loans usually, though not always, come with a feature no other standard loans come with – the Bank of Mum and Dad often doesn’t expect to be paid back. In the instances when it does, nearly a fifth of retirees say the loosely agreed-upon terms of the loans are rarely met.

Using your Household Capital

Retirees need a financial solution that’s both responsible and sustainable. Responsible in that it prioritises their wellbeing as well as that of their families, and sustainable in that it can be flexibly repaid without endangering their long-term goals.

A Household Loan can be used for intergenerational wealth transfer, a way of passing your wealth onto the next generation. If you’re well set up for retirement, you can use a fraction of your home’s value — your household capital — to boost your long-term retirement funding.

How much home equity you can access depends on a number of factors, but you may be able to put a dent in the deposit of your child’s dream home. It can also provide a steady and reliable retirement income, allowing you to draw on other sources of capital to get your kids on the property ladder. Wouldn’t that be a great feeling!