Here is a unique way of helping your child towards home ownership, without providing a guarantee over the family home. Known as the Parent to Child home ownership strategy, or P2C for short.
Today’s lenders require demonstration of genuine savings, of at least 5% of the property purchase price. You can of course gift this money, yet gifts to your children will not count as genuine savings (just like inheritances) and lenders will require at least 10% genuine deposit when assessing any home loan application. Some banks have the “Family Guarantee” or “Family Pledge” where a guarantee is taken over the family home.
If parents guarantee their children’s loan, banks will use the parent’s home as security which can be a risk, particularly if the parents are nearing retirement age.
There are more risk factors involved with the current family guarantee offered by the banks, and an example of one of many risks involved with guarantees, is the breakdown of marriage or family relationship in the future, and with the current divorce rate, this can be a major concern when it come to protecting the family wealth.
You can also formally document the loan with your children at a predetermined interest rate, set by you, and not the lender.
Australian Home Loan Brokers are accredited brokers for this innovative trade marked product from La Trobe