The new P2C™ wealth product launched today enables children to involve their parents in the child’s property purchase without seeking onerous bank guarantees which place the parent’s assistance and wealth in the misfiring line of banks during a default.
According to recent statistics First Home Buyer numbers continue to fall, now down to 12.3 percent of new lending activity from peak levels of 31.4% since May 2009. Buoyed by low interest rates and stable employment conditions consumers have spurred a miniproperty boom of sorts over the past 12 months with property prices up 10% nationally.
“Younger home buyers are increasingly finding it hard to get a foot hold on the property ownership ladder...” according to La Trobe Financial’s Chief Investment Officer, Paul Wells. “It appears to us that one major component of the drop off in demand from young purchasers is not the lack of state or federal government first owner grants, some of which were tied to the purchase of a newly built dwellings only, but that national median house prices have increased to $606,500. For younger Australians seeking to buy a house or apartment in metropolitan Sydney you can expect to pay much more, where the average house prices have climbed to $690,000...”
“As housing is a core part of any individual’s wealth creation it is important that housing continues to be an affordable asset to acquire”, said Head of Product Cory Bannister at La Trobe Financial, and…”our P2C™ product was designed with that in mind”.
The supporting data table attached demonstrates house price to median income multiples increasing from an average of 2.5 times income in the late 1990s to now effectively 5 times income. This is placing many prospective young people out of the market. Such a growing affordability gap needed addressing and our P2C™ wealth management product is a step in the right direction. 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 need for asking mum and dad to put their wealth at risk through bank guarantees.
Parent to Child (P2C™) Assistance Program After realising that property purchases by young Australians are increasingly being made with parental support – especially because the above – La Trobe Financial also noted that many parents did not historically formalise such support and preferred to quietly gift monies. “However from an estate planning and wealth protection point of view this leaves the gifted monies at risk in the event of a subsequent marital or deceased estate dispute as the gift is not repayable”, says Chris Andrews, Head of Funds Management at La Trobe Financial.
La Trobe Financial’s innovative P2C™ product is to our knowledge the best formalisation of parent to child support, formally 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. The P2C™ product is designed to protect the parents’ “investment”
Benefit Child and protects Parents La Trobe Financial’s Head of Funds Management, Mr Chris Andrews, when releasing the product on Friday also stated: “Under our P2C™ program 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. 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. The P2C™ is a better way for parents to help children achieve their property ownership dream, and importantly their investment is properly protected without the need of a costly bank guarantee and potential loss of the parents’ property. It’s really a wealth management credit product and design to protect families with intergenerational wealth transfer and assist children buy into the current increasing house prices.”
P2C™ Product features at a glance:
• Parent decides assistance amount and interest rate (min CPI + 0.5% = 3.4%);
• Parent makes a secured investment in La Trobe Financial’s independently rated and licensed Investment Fund with over 10,000 other investors and $740m in FUM;
• Parent may invest partial or full property purchase amount;
• Parent investment for partial assistance will rank 2nd behind La Trobe Financial Services 1st Mortgage loan;
• Parent investment formalised and can be subsequently waived/forgiven
or enforced; and
• Parents can invest individually, via company or family trust entities and will need to obtain independent legal, taxation and financial advice.
Visit http://www.latrobefinancial.com.au for more information.
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