How you can help your children buy their first home
The housing market is tight, house prices are high. It is not easy for young starters to buy a first home. As a parent, you may want to help get the kids off to a flying start on their first home hunt. There are certainly possibilities such as the following below.
No capital, but surplus value
Not everyone has a large amount of money on hand to gift or lend to children. But sometimes you do live in it. If you have lived in an owner-occupied home for some time, the debt on the home has decreased and the value of the home has increased considerably (certainly in recent years). The difference in the market value of the house and the remaining mortgage debt is called equity. With equity you can free up money to help your children buy a house.
You can withdraw equity by increasing the existing mortgage or taking out a second mortgage on your current home. The bank will always check whether your income is sufficient for these options.
The money that becomes available after an increase or with a second mortgage can be used again as described above for gifting or borrowing. It is even conceivable that you buy a house that you rent out to your child, but get good advice about this, because sometimes there is no transfer tax when buying a first home and in other cases 8%. This entire process of raising a mortgage or applying for a second mortgage plus setting up a family bank is supervised and taken care of by our advisors. Feel free to call one of them on 020-4651951 or fill in the contact form.
Making capital available
When you, as a parent, have a considerable wealth, that wealth enables you to help your children financially. You can opt for a gift to your child or a family bank construction. Be well informed by a financial advisor so that you can weigh all options properly.
Taxes often have to be paid on a gift. The exemption for normal gifts from parent to child is € 6,604 per calendar year (in 2021). Then there is the one-off donation that you as a parent can make to a child: € 26,881. This donation is also tax-free and the recipient can decide for themselves what happens with the money afterwards.
One-time donation of €105,302 (the jubelton)
There is also an option for a tax-free gift for the purchase of a house. This type of donation has come to be called in dutch the jubelton. Parents can donate up to €105,302 (in 2021) tax-free to the child. This donation has a number of conditions. The child (being a starter on the housing market) must be between 18 and 40 years old. The amount of the donation must be used for the purchase of the first home.
The maximum amount to be donated may also be donated over the course of three years, as long as the recipient is younger than 40 when the last part of the donation is received. If the child receives the gift before the age of 40, he or she can take two years to actually use the money for the purchase of a first house.
The one-off donation for the purchase of a house does not necessarily have to take place between the parents and the child. Other family or friends can also help a young starter in this way.
The advantage of a donation is that it does not adversely affect your borrowing capacity at the bank, after all, it is a donation and not a loan. This makes it possible to buy a more expensive house, it comes on top of your maximum mortgage amount that you can borrow from a bank.
At the moment you can still use the jubelton and in 2022 also. A number of political parties are considering the abolition of the one-off exemption, but a decision on this is reserved for a new cabinet.
Another option to help children buy a home is the family bank construction. In this construction, children take out a mortgage with their parents. Mortgage interest must be paid and the mortgage must also be officially reported to the tax authorities. The family mortgage does not have to be registered with a notary.
An ordinary bank sets a maximum mortgage amount based on the income of the buyer and the home to be purchased. In a family bank construction, the parent and child can decide for themselves about the amount and interest of the loan. Be well informed about how the family bank can be used when applying for a mortgage.
With the family bank, you as parents receive interest from the child on the capital made available. That is not to the detriment of the child. As a child, you may deduct the interest you pay for this mortgage from your income tax, so the tax authorities pay a part of the loan. In addition, as a parent you can decide that the interest received will be returned annually (up to a maximum of € 6,604, the normal annual gift exemption).
Combination with regular mortgage
A family bank does not mean that you can borrow more money. If you need a mortgage in addition to the family bank mortgage, you can apply for one at a regular bank. The bank determines the maximum mortgage amount based on your income and the home to be purchased. The family loan must then be deducted from that amount, because it is also a loan. The remaining amount can then be borrowed from the bank.
We are happy to advise you!
Call us on +31 (0)20-4651951 for a first introduction. Or fill in our contact form and we will contact you.