Buying for the kids is complicated

CityLiving Astute investing or just being overprotective? Parents buying for children isn't easy, says Edel Morgan

I'd be lying if I didn't admit to a tinge of green eye when I learnt that a €4 million pile in an exclusive Dublin 4 enclave was purchased by a businessman for his daughter. Apparently, this is the third house in this area that has been acquired by a rich father for his barely-out-of-kneesocks offspring in recent months.

It's not just the very wealthy who are snapping up property for their children. The relative ease with which people can borrow has fuelled a nationwide mania to ensure junior will want for nothing until retirement. Because of the need of many parents to eliminate uncertainty from their child's future, there are a few Irish kids still in nappies who can rest easy knowing they will always have a roof over their heads.

It's natural to want the best for your child. I recently found myself fretting that my son could find himself priced out of the market. At only 10 months old it's not weighing heavily on his mind just yet and perhaps won't until circa 2034 when his 30th birthday is looming and he suddenly starts questioning where his life is going and how he's going to cobble together the €1 million deposit for a one-bed apartment in the city centre. Failing a lottery win, it's unlikely I will be presenting him with the keys to his own pad on Shrewsbury Road any time soon. And if I did, would he thank me? Gratitude is something children rarely feel towards their parents, at least not until they have own children. If you give them a €4 million house no questions asked, the danger is they'll believe it's because they're worth it.

So what drives parents to mollycoddle their children into middle age? For some it's fear. Fear that property prices will spiral out of a child's reach. Fear the child, if left to their own devices, will be unable to provide for themselves. Some parents do it as they believe, if their child is in a nice place down the road, they are far less likely to take off for some far flung corner of the world leaving them alone. Sometimes it's peer pressure. If your friends are busy assembling a property portfolio for their children, you may not want your little darlings to be left behind. This can leave those who can't afford to take care of all - or any - of their children in this way feeling like negligent parents.

Another reason parents buy property for their children is because it makes business sense, says Nick Crawford of Colliers Jackson-Stops. "The parents might have a lot of equity in their own house and the banks have no problem lending them money. You see parents buying across all price ranges, from the top end of the market down to a one or two-bed apartment to give them a foot on the ladder. They might have an arrangement to retain a share in the property. In the case of a country person buying for a child going to college, they know it makes more sense that paying rent and, with property values rising, it can't backfire.

"They might want to help their child get on the ladder or push them higher than they would be able to go by themselves. Some are savvy enough to buy a house knowing that in 10 years time it will probably be almost unheard of to live in a house and developers will be looking to buy whole rows of houses and knock them to build apartments."

On the downside, "a vicious circle" is being created as, by helping out their children, "they are also fuelling spiralling property prices. They may feel that the train is running out of the station and, if they don't jump on it, they will miss out."

The advantage of buying a property in your child's name is that you avoid stamp duty on secondhand properties under €317,500 and on new homes, as the child is considered a first-time buyer. If the property is registered in your child's name and is their principal residence, any profit from the eventual sale would be exempt from capital gains tax (CGT).

However, if you fall out with your child, it makes sense to make a legal agreement that states what will happen to the property. This might prevent junior selling and pocketing the proceeds even though you have paid the mortgage.

Consider what might happen if you want to sell the property to fund your retirement but they refuse? If they marry, you could lose a portion of the property to their spouse or you are ultimately liable for the mortgage - particularly if you act as sole guarantor - and ultimately may have no control of the asset.But many parents don't go down the legal route or think there may be friction later. Some financial institutions allow single title and a joint mortgage, but the child must be over 18 under the Consumer Credit Act. If the mortgage is in both names, both parties are jointly and severally liable and responsible for full payment. If a child wants to transfer the mortgage into their name, they need the consent of the other party.

One wonders if there are many parents out there who still adhere to the old fashioned view that parents should step back after 18 years and let their adult children make their own way in the world?

Easier said than done when you have the wherewithal to help but, before you start cosseting them from the big bad world, consider the consequences of too much parental involvement in a child's life. You might sleep easier knowing they are provided for but could you be depriving them of the sense of achievement of doing it for themselves?