I read an article the other day with this very headline. As a “boomer” it got my attention. It was an overwhelmingly negative article about how Baby Boomers have kept Gen X, Y and millennials out of the property market. How have they done this? By greedily investing themselves which in turn has forced the property prices up.
A bit harsh. So let’s turn the negative into a positive.
Baby boomers can actually set their kids up for life!
The main barrier for getting into the property market is a lack of sufficient savings to cover the deposit and costs needed to buy property. With a little help for your family you can get into your own home faster.
Here are three great ways parents (or any other family members) can help get the next generation into the property market.
1. Family Pledge Loans.
Parents can use their own home’s equity to provide additional security for a portion of your loan amount. This solution reduces the child’s loan to value ratio and can also save a significant amount of money by reducing or avoiding the need to pay Lender’s Mortgage Insurance (LMI). The First Home Buyers Grant and stamp duty concessions can be used with this loan (if the child is eligible).
Things to consider – The parents are not responsible for loan repayments. When equity grows the loan can be refinanced and the parents can remove the pledge.
2. Managed Parent to Child Loans (P2C).
This loan does not require parents to enter into any guarantee or pledge. The parents determine the loan term and interest rate charged and the parent’s house is not needed as security. The First Home Buyers Grant and stamp duty concessions can be used with this loan (if the child is eligible).
Things to consider – A Fund Manager is needed to manage this process for all parties involved.
3. Releasing Equity.
Releasing equity in the parents property and using this equity to lend to the child. This is probably the most problematic of the options as the parents will ultimately be responsible for the loan.
Things to consider – Lending to borrowers in their 50’s and 60’s can also be more restrictive.
A word or warning. I have seen a few examples where lenders have taken the parents property and cross-collateralised with child’s purchase to provide the loan. I believe this to be usury behaviour and should be avoided at all costs. Please seek further advice about this.
There are lots of different options for parents to help their children get in the property market. I would welcome the opportunity to discuss these different options with you and guide you through the process.
Join us on Facebook! I will be live this Wednesday [22nd February 2017] (AEST) from 12noon – 1pm. If you are thinking about buying a home or starting an investment portfolio, pop online and I will be answering any finance questions. Visit us on https://www.facebook.com/onyx.property.investing/
I am here to help and offering five free 25 minute goal setting sessions per week to help you achieve your lifestyle and finance goals. If you have any questions about refinancing or anything else please get in touch with me.
You can call me on 0409 02 99 22 or send me an email.