More Australians are relying on cash injections from their parents to get a foot on the property ladder these days amid sky-high prices.

But while the so-called “bank of mum and dad” trend has become more popular, there are risks that parents need to be aware of and consider carefully, particularly if they are nearing retirement.

Financial adviser and author of Virgin Millionaire Ben Nash said that helping children buy into their first home can come in many forms and can even affect things like pension assessments.

That underscores why it’s important to obtain independent advice before taking the plunge because each family has a different financial situation and plan for their retirement.

“The bank of mum and dad can be a huge help and a huge leg up,” Nash said.

“It does need to be carefully considered on both sides, both from the children and from the parents as well.

“Where parents are approaching retirement, or potentially in retirement, they should be thinking about their own retirement plan and ensuring that they are clear on what they have, what they need, [and] making sure that they’ve got a plan to get there.”

Retirement plan first

Firstly, Nash explained parents will want to have an existing plan for their retirement before supporting their children so that you can be confident outflows won’t affect your golden years.

That likely involves speaking to an independent adviser about how much money you will be able to draw down from your superannuation and the value of assets you own, such as a property.

“Ensure that you’ve got their own rock-solid retirement plan in place first, because once you do have that, you can see how much excess you have available,” Nash explained.

Options for assistance

Once you’ve got your bearings on your post-work financial situation, then you’ll be equipped with the information you need to decide how you might want to help a child get into their first home.

This could involve a cash injection or gift to help a child afford a deposit on a home, but Nash explained there are also other options that don’t necessarily require transferring any money.

One popular option, for example, is parents providing equity backing for their children’s mortgage with their own homes.

“You can secure your kids’ deposit for their first property against the equity that you have in their family home,” Nash said.

“That’s a way that they can provide the support without having to pay out one single dollar.”

It’s important to consider the upsides and downsides of these pathways carefully with a financial adviser though, because parents are taking on considerable risk for their children under these arrangements.

Tax and pension implications

One of the risks, Nash explained, is that opening the bank of mum and dad could have implications for the income and asset test needed to access the aged pension.

“Where parents are giving money to their children, then that does have an impact,” Nash said.

“Particularly for people where parents are at the aged pension age and whether they qualify for that or not.”

There are typically no direct tax implications from helping children get onto the property ladder, Nash said, but if you sell down assets to free up funds to help then there could be costs.