Living Under One Roof.
Max and Sharon had lived in the same house in Browns Bay for twenty years. They raised a family there, with their two children attending the local schools. Now both grown, Gemma, the eldest, was living in London and Dylan, the younger, was living close to home with his partner, Isobel.
Isobel and Dylan had recently welcomed a child, a beautiful baby girl who as the first grandchild was the absolute light of Max and Sharon’s life. With Isobel heading back to work soon, Sharon was planning to look after the baby three days a week. Isobel was reluctant to return to work so soon, but the reality was that meeting current bills and dealing with rising grocery and petrol prices all while saving for a house just wasn’t possible on one income.
Max and Sharon were concerned that Dylan and Isobel might never be able to get a foot on the property ladder. They were currently renting a two bedroom which was barely big enough with a tiny baby and offered no room to grow. Still, the rent Dylan and Isobel were paying was high enough to prevent saving for a house deposit in a meaningful way.
Max and Sharon started thinking of ways they might help. First, they looked at their own resources. Their house was still situated on a full quarter acre site. They knew they were sitting on valuable land that would become too much for them to maintain in the future. The house itself was a standard issue 1970s style. With four bedrooms, one bathroom and a separate toilet, it was too big for them but not quite big enough for Dylan, Isobel and the baby to move in with them, saving on rent.
Determined to help, Max and Sharon sat down one Sunday afternoon with Dylan and Isobel to brainstorm. It turned out when Dylan and Isobel combined their savings with their Kiwisaver, they had around $100,000. A lot of money to be sure, just not enough in today’s market.
After much discussion, they concluded that it would be sensible for Max and Sharon to sell their house and pool their money with Dylan and Isobel to buy a property that they could all live in together. This solved two problems: It would allow Max and Sharon to free up some capital for their retirement and it would get Dylan and Isobel on the property ladder. Not to mention all the benefits of having Nan and Grandad on site!
The two couples started to look for a home and income situation where one couple could live in the main home and the other in the minor dwelling. It took some time, but they eventually found the perfect place: close to good schools, modern, spacious and within their budget.
The arrangement was that Max and Sharon would own 75% of the property, Dylan and Isobel 25%. Dylan and Isobel’s savings were only 5% of the actual purchase price and so they needed to borrow some money to top them up to 25%. Max and Sharon weren’t in the position to lend them more money, as they needed savings for retirement and had their other child, Gemma to consider. They talked to the bank and understood that while the bank could lend Dylan and Isobel the extra $400,000, Max and Sharon would need to be co-borrowers as they would also be on the title to the property.
Realising the complexity of the situation, the two couples decided to get legal advice. They went to see Max and Sharon’s lawyer who explained that these kinds of intergenerational property sharing arrangements were becoming more and more common. She emphasized that even within a trusting family, it was important to have an agreement in place that dealt with all the worst-case scenarios. She had seen things go wrong too many times before. Some issues to consider were:
What if Dylan and Isobel couldn’t pay their mortgage and the bank looked to Max and Sharon to pay?
Were the outgoings on the property (rates, insurance etc.) to be paid 50/50 or proportionate to their percentages in the property?
What happened if one of the couples separated or someone died?
What would happen if it just didn’t work out, and they no longer desired to live all together on the property?
It felt quite overwhelming, but the lawyer explained it was much better to set the ground rules now in a well thought out property sharing agreement. It ensured all parties were on the same page, avoiding nasty surprises down the line.
There are many ways to help children into property. The property sharing arrangements described in this article are being used not just by parents and children, but often by siblings and sometimes by friends. Pooling resources can be a smart way to get on the property ladder. It is tough at the moment; the traditional methods aren’t cutting it for a lot of people. Thinking outside the square is more important than ever. However, involving more parties in a property can complicate outcomes. Legal advice about the different scenarios and options should be a part of your strategy.
If you feel you could use some specialist advice, don’t hesitate to contact the Property Team.
