Looking
to buy your first home but having to rely on Mum and Dad to cough up some
money? How would that work and what
risks do you need to be aware of?
First question … is it a gift or a loan? If it’s a gift, is it to you only or is it a gift to you and your partner? If it’s a loan, is it a loan to you only, or is it a loan to you and your partner? Simple … yet so important to be discussed and resolved.
If it’s a loan, then it will form part of the terms of your lending and require bank approval during your pre-approval discussions. To prevent the risk of any dispute arising in the future and to address what will happen with this debt/loan, your parents loan needs to be clearly documented thereby protecting their interests (as well as yourselves), should your personal circumstances change (ie separation from your partner or an unexpected death).
In some instances, your parents may also seek to own a share in the property, to secure their loan to you. If so, entering into a Property Sharing Agreement is required to record everyone’s expectations as well as what would happen should separation or a death occur. Such an agreement will also identify who will pay for what outgoings, as well as maintenance and repairs and also what will happen when the property is sold.
Alternatively, if such funds are to be classified as a gift from your parents, that too needs to be recorded in writing, which the bank will also require confirmation of this gift, importantly that it will not be called upon by your parents for repayment, at some stage in the future.
As the “Bank of Mum and Dad” is often being called upon these days as a viable option to assist children and their respective partner in purchasing their first home, getting sound advice from the outset with such arrangements being properly documented, is providing a cost effective and affordable option for first home buyers keen to break into the housing market. Our experienced Ward Adams Bryan-Lamb property team can advise and guide you through this exciting process.