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 In Lifestyle

The Bank of Mum and Dad

The “Bank of Mum and Dad” is reported to be Australia’s fifth largest lender and more important than ever in the current lending environment.

The “Bank of Mum and Dad” is reported to be Australia’s fifth largest lender and more important than ever in the current lending environment.

Financial website, Mozo, says the Bank of Mum and Dad has lent $65.3 billion to young Aussie home buyers – making it the fifth biggest lender in the country. A total of 29 percent of Australian parents assist children in buying a home, lending more than $64,000 per family on average with 67 percent not expecting to be repaid for their contribution.

A recent Canstar survey for Domain showed parents on high incomes are far more likely to lend their children money to help buy a house with 60 percent of parents on incomes of $120,000 and higher willing to lend their children money.

Helping your children buy their own home is a generous and significant undertaking and needs to be conducted wisely.

Gifting a cash deposit

The simplest way for parents to assist their children is with a cash gift, but all parties should be aware banks often now seek a history of saving and convincing proof the individual applying for the loan can repay their monthly mortgage.

Drawing on equity/acting as a guarantor

Another way to assist your child is via your own home or investment property as security. However, your property is at risk if your child defaults when it’s cross-secured. Nevertheless you can request to be released when the required loan to value ratio is achieved before the loan is repaid.

Becoming a co-buyer or tenants in common

Co-owning a property with your child is another option via a tenants’ in common agreement. By pooling money for a deposit, your child gets into the property market sooner, but you own a percentage of the property and mortgage.

Buy a residence outright

The ultimate gift is the purchase of an entry level property and many of our Marshall White clients ask us to utilise the reach of our Marshall White One brand which specialises in properties under $1million.

According to MCP Legal If you don’t clearly document and categorise the monies as a loan, those funds can be treated as a gift, thereby forming part of the child’s assets, and estate. This would then expose those monies to matters potentially beyond the control of the child – whether by way of a matrimonial or de-facto separation, or if the child is self-employed, creditors, or upon a child’s demise, a claim on their estate.

Of course one of the simplest ways to assist your children buy a home is to allow them to live at the family home while they save for a deposit. However for some couples eager to empty their nests – giving a helping hand is a better option.

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