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Many parents would understand the long term benefits from home ownership and want their children to “make a start” on home ownership or even property investment. Many children want to start on the property ladder but are daunted by the size of deposit and the additional costs that come from having a relatively small deposit.

What if a parent could loan part of the funds to a bank (i.e. make a term deposit in the bank), the bank then lends to the child…but the bank is only lending 80% of the total loan amount with the remainder made up by “on-lending” the funds on deposit from the parents. The bank still acts as the intermediary, holding the mortgage, collecting the repayments, etc. The child still has the full obligation to the bank, and if they don’t meet their obligations can be “sold-up” by the mortgagee. The parent has a term deposit with the bank that pays them interest, is “protected” by the bank being the mortgagee, and is one-step removed from the potential conflicts that can arise from direct lending to family and friends.

This scenario is one of the new lending products available from financial institutions, and there are many more variations on this theme.

The saying “where there is a will there is a way” is certainly relevant for first home buyers and parents wanting to offer “protected” assistance. It is more than ever a case of seeking professional advice to understand all the options available.


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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.