So, you want to help your kids purchase property?
30 September 2016 MO'R Mortgage Options
Perhaps you’re tired of being woken by uber car doors slamming in your driveway in the early hours on Sunday mornings. Perhaps you want your third bedroom back. Or, perhaps you just want to help out your kids. Whatever the reason, we’ve been getting lots of questions lately from parents wanting to know how they can help their kids buy property.
The most suitable option for you and your family will depend on your financial situation, your future plans (retirement, plans to help other children too), as well as everyone’s comfort levels.
Whilst there are a few other ways (i.e. becoming a co-applicant or setting up an official loan agreement with your child) here we outline two of the most common – and easiest ways – to help your family purchase a property.
This is when you give your child money but do not expect it to be repaid. For a lender to consider these funds when assessing the loan, you will generally need to sign a statement declaring the funds were provided as a gift and in no way constitute a loan.
A non-repayable gift is often the easiest way to go – but only possible if you have cash available and happy to part with it.
A family guarantee loan works by using the equity in your property to help your child secure a new loan. This means the new loan is secured by your child’s new property, as well as existing equity in your home. It’s generally arranged so the borrower can avoid paying Lenders Mortgage Insurance (i.e. 80% of the security required is provided by the new property). Since it is a security guarantee, there is no reliance on your income to support the loan. All loan repayments are met and paid for by the borrower only – your child.
A family guarantee loan can be a temporary arrangement until –
a) the guarantor loan is paid off; and
b) your child’s property increases in value so that all the debt can be secured solely by their own property and your property can be released.
A family guarantee loan can be a good option if your child is having trouble saving a deposit large enough to buy a property and you have equity available in your own property (that you don’t have other plans for).
Even though you are not liable for loan repayments as a guarantor, you could become liable for the amount secured by your property if loan repayments are not met for an extended period of time. Find out more about Family Guarantees here.