
Why consider buying property with parents?
Joint property ownership between parents and kids is something I see often.
When I say kids – it is often a mature adult child and their partner who the parents are looking to help onto the property ladder.
Aside from buying property with parents, some common ways parents help children onto the property ladder are:
- Gifting them large sums of money
- Guarantor home loans
- Private loans
These solutions can all circumvent any shortfall in the amount needed for a deposit.
But as helpful as these gestures may appear, they can have limited impact on home loan affordability. Affordability is a central issue for many getting onto the property ladder, especially, as seen here, for lower income earners.
How parents usually help kids buy property
In my experience as a mortgage broker, the most common way I assisted parents help their kids buy property is mainly through gifts and guarantees.
For example, let’s say a house is purchased for $700,000 (assume no purchase costs) and the kids have $50,000 saved. This is well short of the preferred 20% deposit which would be $90,000 in this case. Some options for parents to help could be:
Guarantor home loan
This clever home loan structure can help avoid lenders mortgage insurance and use a guarantee to cover the 20% deposit shortfall – a $90,000 guarantee in this example. I detail the inner workings of a guarantor home loan here.
The end result? A home loan of $650,000.
Parental gift
I have lost count the number of times parents pull a rabbit out of the hat and give the kids a life-changing gift of cash. A gift of $90,000 in this case would also meet the deposit shortfall.
Because it is a gift rather than a guarantee, the kids would use this amount to bring the home loan down to 80% – or $560,000.
Both the above solutions can help kids buy a house – if they can afford the loan. Many buyers see affordability obstacles greater than any gift or guarantee a parent can offer. Some buyers just need to borrow less – easy said I know.
How co-ownership suited these parents and kids
Buying property with parents can potentially help both parties – parents and kids.
From my mortgage broking perspective, this co-ownership scenario was rewarding to assist with.
The affordability issue
Property values in regional Victoria were proving to be out of reach for this family. Long term renters, they were finding it increasingly difficult to get onto the property ladder.
As is often the case, parents had what kids didn’t—equity.
I have talked about how objectives don’t need to be the same – they just need to complement each other:

The half priced property
Not all places make it to market. These buyers loved where they lived so they managed to negotiate privately with the landlord to buy for $490,000 – off market.
A 50% ownership share meant the kids only paid half the price – $245,000 for a 50% share. Buying property with parents allowed them to live in the house and hold back some savings for long overdue improvements.
The parents bought the other half share and considered this an investment.
The home loan structure
A 50:50 ownership split was a good solution for both kid and parents.
Kids home loan
They were self-employed, running a business that was only just getting off the ground. The future looked bright from an income perspective, but it made affordability difficult to prove at the time.
A 50% property share matched the needs of the kids – smaller home loan, keep savings, stop renting, start owning.
Kids used this property as security to borrow $260,000. This covered half the purchase price and costs. Kids were the only borrowers for this loan. Parents, as co-owners, offered a guarantee and avoid being co-borrowers with this home loan structure.
Parents
Parents used their own equity to contribute their share – $260,000. This loan had nothing to do with kids. As the parents used their own home to secure their loan, no reliance was placed on the new house. This solved the equity and deposit issue for the kids.
Parents helped the kids onto the property ladder, and had a share in the property.
New home summary
$490,000 – Property value
$260,000 – Kids home loan
53% – LVR
Then parents wanted out
A few years later the parents saw an opportunity to move away and begin another chapter. The problem? They needed their equity and funds to buy another property for themselves.
They need to sell their 50% property share.
The good news – the property was now worth $650,000.
The result?
The kids’ business had continued to grow, and they could now prove capacity to service a new home loan to cover their own share and buy out the parents 50% share.
My take on parents, kids co-ownership
Home loan structure
The thing I liked about this home loan structure was that there were no joint home loans – kids had theirs and parents had their own too. I detail a clever home loan structure for co-ownership here.
Benefit for kids
The kids could not have done this without a co-ownership arrangement. A whopping $260,000 gift was not an option. Had the kids not got into the property market, prices could have moved out of their reach.
When the parents wanted out, the increase in property value enabled them to buy out the parents. Using equity in the property, and the income from a growing business, they increase their home loan amount to buyout parents – and now have 100% ownership of the property.
Benefit for parents
The parents helped in a way that did not tie up any of the equity for zero return.
Buying 50% of a property meant the parents were rewarded with a capital return.
Their cash contribution, which was drawn from equity in their home, enabled the kids to borrow an amount they could afford and enjoy a share of property ownership.
Family – Know what you are getting into
You love them but there are things that annoy you, always have annoyed you. And guess what? Will probably continue to annoy you!
Joint property ownership comes with compromise. Weigh up the benefits of having a stake in the property market with any possible drawbacks of who you are buying with.
I recommend a co-ownership agreement no matter who you buy with – even family.
Note for readers: Some facts and figures altered for to retain anonymity of my clients.
Always seek financial, tax and legal advice specific to your situation.