Finance Enews
FEBRUARY 2017

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Could This Bright Idea be the key - Home Loans at 3%p.a. are now Available

The concept of parents lending money to their children to help with property purchase is as old as time itself, however not without the potential pitfalls associated with unsecured lending which can be significant. At La Trobe Financial, we have found the solution, an innovative P2C® (Parent-to-Child) Product: a combined credit and wealth management product designed to assist young Australians onto the property ladder and protect families with intergenerational wealth transfer.

The P2C® wealth product enables parents to assist their children with property purchase without providing onerous bank guarantees which place the parents’ assistance and wealth in the grip of banks during a default.

The number of first home buyers, already around record lows, saw numbers drop even lower. In the original Australian Bureau of Statistics (ABS) numbers, 14.1 per cent were home buyers in July 2016, but that has been revised lower to 13.2 per cent.

Young adults are living at home longer, finding it harder and more costly than ever to get onto the property ladder. With median house prices increasing nationally and to more than $882,000 in Sydney and in Melbourne $610,000. It is harder than ever to afford a starter home – without the assistance of family.

The P2C® product looks to address the affordability gap between house prices and median income multiples – now at a staggering 5 times income. The P2C® product is an attempt to protect parents’ wealth when they do assist their children, and at the same time enable children to enter the housing market without the need for asking mum and dad to put their wealth at risk through bank guarantees, or further mortgages against the parental primary or other residences.

Wealth Protection

The P2C® product formalises the assistance process between parent and child, documenting the arrangement, registering a mortgage on the security property, and then independently managing the assistance to ensure it is repaid in accordance with the agreed terms.

Parents have traditionally gifted monies to their child which can leave them exposed from an estate planning and wealth protection point of view, for example, in the event of a subsequent marital or deceased estate dispute. The P2C® product is specifically designed to protect the parents’ “investment” from such instances without exposing their assets or credit file profile to any risks associated with their child running into difficulty with repayments. The parents however can still provide the much needed assistance for their children with interest rates starting as low as 3.5 percent per annum.

Avoid Costly Lenders Mortgage Insurance (“LMI”)

Parents are able to assist their child with the full purchase amount, or they can assist in part to make up the balance behind the child’s own loan, possibly saving their child tens of thousands of dollars in Lender’s Mortgage Insurance premium.

La Trobe Financial can provide first mortgage finance to 80% LVR without LMI.

How Does it Work

The parent decides the amount they wish to lend and the interest rate they wish to set (a minimum of CPI + 0.5%). Then they make an investment in La Trobe Financial’s independently rated and licensed investment fund with over 15,000 investors and $1.3 billion in funds under management. The Parents’ investment might be for the full amount or just part of the property purchase price. The parents’ contribution will be secured by way of a registered mortgage, ensuring they have rights to the money at all times in the event of non-payment by the child following a marital or deceased estate dispute. In the case of part funding, the Parents’ investment will be secured by way of a registered second ranking mortgage behind La Trobe Financial (or other lender’s) first mortgage. A parent can make their investment individually, collectively with other family members and via company or family trust entities. They will need to obtain independent legal, taxation and financial advice.

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La Trobe Financial Services Pty Limited - Australian Credit Licence Number: 392385
La Trobe Financial Asset Management Limited - Australian Credit Licence Number: 222213

Copyright 2017 La Trobe Financial Services Pty Limited ACN 006 479 527. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial.

This publication does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and a general overview on matters of interest and it is not intended to be comprehensive. You should seek your own financial or other professional advice before acting or relying on any of the content.