It’s been reported that one in three first-home buyers are receiving financial assistance from their parents. That’s unsurprising, considering Sydney’s notorious housing unaffordability – where you’d need to be earning $190,000 to avoid being officially classified as under ‘mortgage stress’.
It’s a phenomenon that’s been dubbed the 'Bank of Mum and Dad' – and why not? That’s what family is for! Sadly, however, we see too many families turn up in our office where this arrangement has turned pear-shaped, leading to stress and conflict. Considering, on average, those one-in-three first home buyers borrowed more than $64,000, we’re not talking insubstantial figures.
If you’re currently considering becoming (or drawing on) the Bank of Mum and Dad, ask yourself whether you’ve considered any of these things first:
- Do you have any expectations about how or when the loan should be repaid?
- What will happen if you die before the loan is repaid?
- If the recipient is part of a married couple, what will happen if they separate or divorce?
- What do you expect to happen if the loan recipient dies before the loan is repaid?
- What will happen if the loan recipient is unable to pay back the money?
- Have you been asked to provide security over your own assets rather than actual money? (And do you know the extent of the risks which are involved in these kinds of arrangements?)
If money is given as a gift with no expectation of repayment it's still important to remember that those funds (or whatever they are used to purchase) will become part of the pool of assets available for division in the event of a separation by the child and their partner. In the case of a gift, you should also consider the expectations of any other children and whether this could lead to conflict.
We can help you document these types of transactions well before you encounter any of these issues, meaning well-meaning gestures of generosity stay in the positive light they were intended without turning toxic.
We’re not saying families shouldn’t give each other a leg up – just make sure you have firm footing to start off with!
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This information and information published on our website and social media sites is general in nature and for information and entertainment purposes only. This information does not constitute legal advice and should not be relied upon as such. If you require legal advice which takes into account your personal circumstances, please contact us for an appointment.