Warning for parents offering kids help
Parents trying to help their children into the property market are being warned to take care.
More buyers are turning to their families for help as rising house prices make it harder to scrape together a sufficient deposit. But lawyers fear some of those giving sums of money have not fully considered the potential risks of their decision.
Mortgage broker Glen McLeod said he saw some contribution of money from parents in a ‘‘high percentage’’ of the deals done for first-home buyers.
Financial adviser Hannah McQueen said with more banks looking less favourably at the prospect of a guarantee across parents’ property, more were helping with a gift or loan.
But family lawyer Selina Trigg said they should think twice about offering a gift. She said they could easily lose it to their child’s partner, if the relationship broke down.
‘‘If you gift money to your son or daughter for a deposit on a home and then they go into a new relationship, or are in a relationship and it ends, potentially half their gift is going to disappear,’’ she said.
She said a sum of money given as a loan, even with the agreement that no interest would accrue and no payments were expected, would offer more of a safeguard.
‘‘That loan would have to be repaid as a relationship debt. It mitigates the risk.’’
They could also be considered a secured creditor if their child started a business that failed, and would be repaid ahead of others.
If later on the parent decided it did not matter so much anymore, they could choose to forgive the debt, or note in their will that the loan should be forgiven.
McQueen said a loan from parents could sometimes make it harder for a borrower to qualify for a mortgage. ‘‘This means the parents may need to take an interest in the property to the value of the amount they are paying.’’