Helping the Next Generation
In times of increasingly difficult house affordability, rising rentals and an uncertain interest rate future, it is natural for parents to want to help their children into their first home.
It is also understandable that many parents, who now face long retirements due to the increasing life expectancy, may not want to give their assets away while alive.
How can parents help their offspring into their first home without reducing their overall equity in their own property portfolio? This is of interest on both sides of the equation - to parents who want to help, as well as to children who seek help. Parents do not want to see their children living in rental accommodation forever and children do not want to live in rental accommodation forever.
There are a number of ways that parents can help. While it is not my role to advocate, advise or recommend any of them, it is reasonable for me to explain that they exist. The important thing I can do is assist with the funding arrangements once a decision is made about what form this help will take.
Providing a guarantee. One option is for the parents to provide their own property as a security for a sizeable deposit on the home to be purchased. Under this method, the parents may take a mortgage on their own property for, say, 20% of the value of the property to be purchased. The children would borrow a further 80% against the value of the new property. A mortgage would be taken over the parent's property in addition to the mortgage on the new property and the two mortgages would be legally linked.
Joint Purchase. Another option is for a joint purchase of a property where one portion of a property is owned by the parents and one portion is owned by the children. In this situation, the arrangement may be that the parents own 40% of the property and the children own 60% of the property. The agreement might include a future option for the children to buy the parents' share at a later stage.
There are variations to these options, and I stress that my role is not to advise which is best. Caution needs to be taken in how to help the next generation but the need for caution does not mean that it cannot be done.
What is clearly my role is to access the best finance option for whichever option is chosen. Please call me if you need further assistance.