Nowadays the term kippers – ‘kids in parents’ pockets, eroding retirement savings’ is bandied about frequently, as more and more adult offspring refuse or are unable to make the launch from the family nest into their own home. With rental prices soaring, they’d prefer to stay put while they save for a deposit on a home of their own, causing a big drain on the parents’ finances. A house packed full of adults can be frustrating so if you’d rather the kids moved on there are a few ways to help them get into the property market sooner.
You can split the cost of a property purchase with your children, with you covering a percentage of the price. This means the kids have less of an initial outlay and you have the tax benefits and potential rental income of an investment property, as well as the possibility of capital gains in the future. There’s also the potential for the kids to buy out your share over time.
As a parent you can give your child a sum of money to put towards the initial home deposit. While this may seem a quick route to home ownership, the bank will still take into account the buyers’ repayment capacity and may still refuse a loan based on their credit or financial history.
You can always lend your children all or some of the deposit amount, with a carefully drawn up repayment plan. Again, the bank will do a very thorough check of your child’s financial history before granting a loan.
A guarantor allows the equity in his or her own property to be used as additional security for an offspring’s loan. The primary security for the loan will be the property your child buys, but the lender will also take a mortgage over your property. Being guarantor allows your child to borrow the full amount for a property, waiving the need for a ten or twenty percent deposit and also possibly reducing the need for mortgage insurance. It’s possible in the future to be released as guarantor, if your child’s property has built up enough equity.
While all these options are definitely worth considering, it’s also very important when mixing money and family to take into account the risk of future pitfalls such as marriage breakups, job losses or family feuds.
The glaring reminder is to proceed with caution – both parties should get financial as well as legal advice and any agreements should be put in writing. What may seem like a smart move could backfire down the track so think carefully and make sure you don’t invest more than you can afford to lose for the sake of some extra space at home.
A buyer’s agent can help you find a starter property for your kids. From more information contact Amanda On My Side