May 30, 2021
Kirsty O'Hara
First Home Buyers
All Blogs

Find out how gifting can get your adult kids out of your house and into their own.

Find out how gifting can get your adult kids out of your house and into their own.

 

By Kirsty O’Hara

 

Every week numerous home loan applications cross our desks that include some level of family gifting. The kids are happy; they get their own place. The parents are happy; the kids move out and they get their space back. If you’re a first-home buyer and this sounds like you, you are not alone, this is the majority of first-home buyer applications.

 

If you’re a kind parent, wanting to help your adult child onto the property ladder, gifted deposits can be a better option, instead of guaranteeing or cross-securing your child’s new home against your existing property.

 

To answer three common gifting questions:

1. How much canI gift? Any amount of gifting can be included, from $5000 to$500,000. This can be added to the savings your adult child has been actively squirreling away.

2. I don’t have savings to gift! Now what? If you don’t have the gifted funds on hand in a savings account, some parents arrange a top-up* (secured against their existing home), we can help organise this top-up, to make the process simple and efficient.

3. What are Gifting Declarations? All family gifts need to be accompanied by a gifting declaration that confirms that the gift is a non-interest bearing, non-repayable gift with no encumbrances on the title. If you do want the loan repaid when your child sells the property in the future, this is generally okay, but the bank needs to approve the wording on the gifting declaration. VelocityFinancial have a couple of different loan and non-loan gifting templates that we share with clients, to make sure the wording is something the bank will feel comfortable signing off.

 

*If you’re not interested in arranging a top-up, this is where guaranteeing your child’s mortgage can be the better option; as it means that your existing home can be offered as security for the difference required to get their deposit to 20%. There are some things to keep in mind if you consider this option, see #3 and #4 below.

 

The five best things about gifting are:

  1. You can go to their house for dinner! Gifted funds can help your child get onto the property ladder sooner. Given the increasing rate of property prices, this helps them to buy a home before the goal posts move yet again (it can be near impossible for our savings to keep up with house prices in the current market).
  2. Save money on due diligence and accelerate debt reduction. Getting your child’s deposit to 20% means they will not require a Registered Valuation on every property they consider (these cost approx. $1000 a pop, and are required on all purchases where your deposit is less than 20%). Additionally, with a 20% deposit, your child has access to the special interest rates you see advertised; and, as a result of this, can adopt more aggressive debt reduction strategies while interest rates are low. We encourage clients to set aspirational repayment goals to smash off their mortgage faster.  
  3. You’re off the hook. Gifting funds means that you are not responsible for any part of your child’s mortgage. This protects your own existing home, as there is no cross security - and you are not accountable for any of your adult child’s new lending.
  4. Your wagon is not hitched to theirs. This is best if you are wanting to invest in other property yourself. Gifting means your financial situation is considered independent. If you are a guarantor then until your child has repaid your guaranteed portion of lending, this will be considered a debt you are accountable for (from a servicing calculation perspective) which may work against you on any future deals you are considering.
  5. Increasing house prices = Increasing equity. If the property prices continue to climb, your child may find they have an increased equity position. As a result of this, there may be a day in the future where they can get a top-up against their new home … and, out of goodwill, gift funds back in your direction! You’d want to run this past your accountant before considering this option, to ensure there are no tax implications.

 

If you want to learn more about how gifting works, please contact one of our advisors and they can give more tailored advice specific to your family situation.

 

Before you make any decisions you should talk through your specific family situations with an adviser from Velocity Financial and also potentially your families other professionals such as a lawyer and accountant to come up with the best solution for your specific situation.

 

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