Gidi and his wife could not have bought their apartment in south Tel Aviv without the help of their parents. "I feel really bad about it, but we didn't have a choice. We couldn't have afforded to buy otherwise," says Gidi, who is one of a growing number of home-owners who rely on their parents to purchase their flat. "My in-laws spent their entire lives preparing to help their children buy homes. It's a family thing for them; they saved money to help my wife buy a home just like they saved for pension. They also saved to help my wife's brother. I have no idea how we'll pay them back."
Given climbing home prices, many couples have little hope of ever buying their own home without help from their parents. A report recently published by Migdal Capital Markes found that young couples earning the average wage would need 24.5 years to save up NIS 450,000 for a down payment, presuming they put aside 10% of their net salaries every month. This sum would be enough for a down payment on a NIS 1.5 million mortgage. At that point, of course, the couple would still need to make monthly payments. These are the two major financial challenges when it comes to buying a house: the down payment, usually equal to 30% to 40% of the home's cost, and the payments. A NIS 1 million, 20-year mortgage, for instance, would currently bear monthly payments of about NIS 5,500. That's no small sum for a couple setting up a household, whose expenses are likely only to increase over the coming years.
"Parental involvement (in purchasing a home ) is larger now than ever," says Idan Elkabetz, a partner in consulting company Atid Mortgages. "After the recent price increases, young couples don't have many options. They can either pay very high prices in the center of the country, or move away. Apartments going for NIS 1 million to NIS 1.2 million in Hadera or farther north, or in Ashkelon and farther south, necessitate down payments of NIS 300,000 OR NIS 350,000. Parental assistance is particularly important if we're talking about apartments selling for NIS 1.5 million or more. These apartments need down payments of NIS 500,000 to NIS 600,000, and in many cases that money comes from the parents."
"In many cases, the big challenge is to pull together the down payment," says David Meizlik, head of the mortgage department at Mercantile Discount Bank. "After pulling together their savings, their wedding presents and loans from employers, all that's left is the parents." Parental assistance is particularly noteworthy among the ultra-Orthodox public and the national religious since members of these communities marry at relatively young ages. Secular couples tend to marry later, so they have more savings, they're more independent, they've been working for several years and some have even reached management positions.
Second mortgage for mom
What happens when the parents don't have money available to help? They have two main options - taking out a second mortgage on their own home, or helping the couple with monthly payments. The first option is the more common choice. "By age 50 or 60 the parents have already paid off their own mortgage, so they can use their home as security for a NIS 100,000 to NIS 200,000 loan to help their children buy a home," says Elkabetz. "This isn't that big an expense, and in some cases the parents count on being able to return the loan early once they receive their pension money. This kind of loan can generally be paid off over 10-15 years. It'll cost about NIS 1,000 to NIS 1,500 a month. Generally, these kinds of loans bear interest about 0.5% to 1% higher than regular mortgage interest rates."
There can be repercussions for taking out such a loan at that age. The parents are likely to be retiring relatively soon and could find themselves in poorer health as they age. If they are unable to pay back the loan, they could lose their own home, although the bank would let them keep the full proceeds from its sale minus the loan cost.
Picking up the monthly payments
The second option is helping the children make their monthly payments. "Let's take as an example a young couple just starting out who earn NIS 10,000 a month jointly," says Meizlik. "NIS 5,000 monthly payments would be very large for them. But let's say they believe that within three years they'll be earning NIS 15,000 a month jointly and thus could make the payment," based on the recommendation to set mortgage payments at no more than one-third of the couple's salary. "If they have parents or in-laws who are doing well, then they could receive NIS 2,000 in monthly assistance until they're earning enough on their own. In such a case, if the couple doesn't make their payments, the bank generally turns to the parents before launching legal proceedings.
"Once the couple starts making payments on their own, the bank stops charging the parents at all. That said, you have to recall that young couples often see their expenses grow over time along with their salaries."
Another way to finance the purchase is through a regular bank loan, notes Attorney Miri Cohen, an expert in property law. "These loans are given for any purpose in exchange for security. You can't use your home as security, but you can use other assets such as vehicles. The disadvantage of such loans is that they're often for relatively short terms, and they bear higher interest rates than most mortgages. On the other hand, they don't bear penalties for early repayment."