With house prices soaring in Sydney and throughout Australia, it’s little wonder that first home buyer purchases are on the decline. This mini property boom, caused by low interest rates and stable employment levels, has simply priced first home owners out of the market. Family guarantees have essentially been around since the dawn of modern economy, however, traditionally carrying a significant risk to the personal wealth of the parents.
Enter P2C Loans, a new product launched on the market by LaTrobe Financial aimed at assisting ‘generation rent.’ Parents are often willing to assist their children in entering the property market in a multitude of different ways from allowing adult children to live at home, rent free for longer, to gifting a home deposit. While helpful, gifts and traditional guarantor arrangements leave the parent’s open to financial loss in the event their child defaults on mortgage payments, or even experiences a divorce.
With a P2C loan, parents decide the amount of the loan and the interest rate they wish to extend (minimum of CPI + 0.5%). A secured investment in LaTrobe Financial’s award winning Credit Fund is made by the parents. This credit fund is externally rated, with 15,000 existing investors. The parental investment may be for the full amount or a portion of the property purchase price. This contribution is secured by way of a registered mortgage. This allows access to the funds at all times if the child isn’t able to make payment or in the event of the child’s death or marital dissolution. As a P2C loan is a formalised investment, there is no risk of loss to the parent in a deceased or marriage dispute scenario.
Parent support can, at any time, be waived/forgiven or enforced. The funds for investment can originate from individuals, companies or family trusts, though it is always recommended to obtain legal advice before investing.
The benefits of a P2C Loan include:
- Protection of both parties through LaTrobe Financial acting independently
- No need to resort to debt recovery
- Relationship documentation to protect the full economic value of the P2C assistance
- LaTrobe acts as the “policeman” while parents retain control of assistance sum
- There is a platform available for joint assistance (i.e. extended family/multiple investor options)
- Increased purchasing power in the property market for the child
- P2C loans have one off legal agreements, making them more cost effective
- No guarantee required by the parents, and no risk to personal assets
- Intergenerational wealth distribution is protected from the effects of marital separation
- Children are protected from impulsive eviction by parents
When parents require additional security, the loan may be registered against the title of the child’s property. It is always important to remember, however, that while parents, their children and in-laws may have a fantastic relationship today, nobody can predict the future. That’s why security in this area is of great importance.
Family finance scenarios are a high-risk area, with great reward when all works out for the best. P2C Loans have the potential to eliminate familiar loaning pitfalls but providing security for both parties. Documentation is key for clarity and peace of mind.
If you are interested to learn more about P2C Loans, or financial products on the market aimed at assisting children in to the property market, don’t hesitate to contact Tracy at Mortgage Masters today on 0439 159 843.