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Brendan Gilmour

The Bank of Mum & Dad – Leveraging Inter-Generational Wealth

Written by Brendan Gilmour

From a lending perspective, intergenerational wealth can be leveraged to assist your adult children to purchase property. There are more ways that this can be achieved than simply ‘gifting’ lump sums of cash and some of the options don’t require any cash ‘liquidity’ at all. There are also government schemes and grants that may apply in certain circumstances, but when none are available, or where they aren’t sufficient to provide access to the ever-rising housing market, what are the options that parents have to help their children to purchase a property? 

Security Guarantor: 

  • Offer equity in own home (or investment property) to provide ‘security’ against a portion of child’s loan. The borrower will still be required to show a percentage (often 5%) of ‘genuine savings, so the security guarantee would often be for no more than 15% of the purchase price. This guarantee enables the borrower to avoid paying LMI (lenders mortgage insurance) in addition to their mortgage repayment.  

Reverse Mortgage: 

  • Homeowners that are over 55 years old, in certain circumstances, can convert part of the equity in their home into cash, which they can then contribute/loan to their children’s property purchase in line with some of the options below.  

Co-purchase: 

  • Purchase the property jointly, either as co-owners or through a legal structure like a trust. This can be done as traditional joint lenders OR increasingly, as a property share loan where the applicants (and their financial positions) are treated and assessed separately. 

Rent-to-own Agreement: 

  • Buy the property and rent it to your child with an option to purchase it after a certain period. 

Loan Money: 

  • Offer a family loan. Ensure terms are clear and documented to avoid misunderstandings. 

Gift Money: 

  • Provide a financial gift to help with the down payment. Be aware of gift tax implications and limits. 

Leveraging intergenerational wealth effectively requires careful planning, education, and often professional advice to ensure that wealth is not only preserved but also grown for future generations. 

 

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