Want to help your kids buy property? Here’s how.

The real estate market can be tough for young adults, but as a parent you may be able to lend a
helping hand. We tell you how.

1.Parent-to-child loan

A parent-to-child loan is when a parent lends their child money. This is a formal, legally binding
arrangement, administered by an independent third party. At the start of the loan period, both
parties agree to terms including repayment amounts, a schedule and a process to manage
defaults.

• Benefits: You can set generous terms for your child, but your assets, savings and credit rating are somewhat protected as you are not the borrower.
• Drawbacks: There are legal implications for your child if they have a spouse and the relationship breaks down, in that the spouse could try to claim some of the loan proceeds as an asset of the relationship to which they are entitled. There are also tax considerations for both parties.

2.Family guarantee

If your child doesn’t have enough security for a mortgage, you could provide a family guarantee.
This is where you use some of the equity in your own home as part of the security. For example,
your equity might cover 20% of the security, and your child’s new property would be the other
80%. It’s also known as a guarantor loan.

This can be a temporary arrangement until your child has paid down the loan to an acceptable
level.

• Benefits: You have the option of guaranteeing only a portion of the loan.
• Drawbacks: If your child defaults, your assets are at risk.

Read More