I have said it before and I will say it again - real wealth is inter-generational.
Often the easiest way to assist with your next generation to create wealth is by giving them a helping hand into real estate.
But many parents have often left themselves wide open to losing their loan to their child (or gift), through acts which they have no control over.
There are many stories of parents helping their children into a property with a deposit, only to see it split with their ex-partner 18 months down the track.
There is a better way.
Second Mortgages on the property protect the parents gift/loan/investment, while helping the child remember that nothing in life is really free.
This is why I really like LaTrobes Financials "Parent to Child" loan, where the parents can "invest" money and get a real return (rate set by the parents), where the child then uses that money as a deposit for a property loan.
Because this is done as an arm’s length transaction via a third party, it gives protection to the parent, but also adds responsibility to the child who is borrowing the money.
We are seeing a big lift in enquiry for this product - and rightly so.
Housing Affordability
Research released by RaboDirect has stated that Generation Ys are less likely to want to leave, the longer they stay living at home.
The research report revealed that 34 per cent of Gen Ys aged 26 to 29 love living at home and never want to move out.
But while it may be an act of love letting your adult children stay at home it is also a costly venture. The report also showed that parents of Gen Y ‘never leavers’ pay approximately $5,000 per year in added household costs to support them, and that many of these Gen Ys are not mindful of their mum and dad’s household budget.
Under half (38%) of stay at home children take steps to reduce utility bills such as minimising unnecessary heating or switching off lights and appliances not in use.
Is parental generosity teaching your adult children about financial responsibility or are your children getting an easy ride? Everyone would hope that a parent would be generous to a point, but if your adult children miss out on learning valuable lessons about budgeting and financial responsibility over the longer term, your love may actually create a problem.
La Trobe Financial has created a parent-to-child mortgage product (P2CTM) that aims to address some of the issues facing parents and their Gen Ys. A P2CTM Mortgage formally documents a lending arrangement between parents and their child, registering a mortgage on the security property that the child is purchasing, and then independently managing the assistance to ensure it is repaid in accordance with the agreed terms. The P2CTM product is designed to protect the parents’ “investment” without exposing their assets or credit file profile to any risks associated with their child running into difficulty with repayments.
The parents however can still provide the much needed assistance for their Gen Ys with interest rates starting as low as 3.4% per annum.
Now parents can continue to be generous, protecting their own money while teaching their children valuable lessons about budgeting and financial responsibility.
To find out more about Parent to Child Loans and other ways that parent's can help their children enter the property market, contact Scott Butler of the Edge Specialist Advice Network in Toowoomba.
