Insight

Case Study: Parent Assisting Young Adult Purchasing Their First Home

Case Study: Parent Assisting Young Adult Purchasing Their First Home

A client, after having been declined by their personal bank, approached us for assistance.


Wishing to help their young adult child purchasing their first home, the parent put down quite a substantial deposit, but still required a small home loan to conclude the transaction.


The parent applied for the home loan in their personal capacity, as they believed the young person would not qualify due to affordability and being self-employed for less than 2 years. The parent is over 60 years old and also self-employed, albeit in a lucrative, well-established business.


At a quick glance, there was no doubt that this application was declined by their personal bank due to the parent’s age. The bank would require the home loan be repaid in a short term (5 – 10 years instead of 20 years), resulting in elevated monthly instalments, bringing the repayment to income ratio substantially higher than the acceptable 30%. While the banks claim that if we can prove affordability, the 30% is merely a guideline, in our experience, they seldom approved a home loan where the repayment to income is greater than 30%.


We proposed that the property be purchased in the joint names of the parent and young adult. The home loan, therefore, would also have to be in joint names. Despite the young person not being able to qualify on their own, they added longevity, additional affordability and security to the application.

The home loan was approved over a 20-year repayment term. But better still… Owning a property will give this young person a lot of credibility and a foot in the property market, which was what the parent originally intended by offering their assistance.


Should the parent have purchased this property on their own, the rental income received would be taxable.

When selling the property only 50% of the profit will be subject to Capital Gains Tax (CGT), as the other 50% is the young adult’s primary residence. Should the property have been only in the parent’s name, the whole transaction would be subject to the CGT on selling the property.


There will also be saving in estate duty should be the parent pass on.


The personal bank did subsequently approve the home loan, but the deal we arranged for the client was a far better option for all concerned. Another great benefit for using the services of an experienced bond originator such as Property Factor.

"Our clear understanding of the banks' credit criteria and our ability to think out-of-the-box, enables us to position your home loan application, no matter how complicated it may be, for a positive outcome."

View Details
- +
Sold Out