Is it a gift or just a guarantee?
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Is it a gift or just a guarantee?
Posted on Monday, March 23 2015 at 11:17 AM
Any parents wanting to assist their offspring in buying their first property have been warned to carefully consider how they provide the funds, to ensure they’re best protected.
Mortgage
broking group Smartline Personal Mortgage Advisers suggests that parents need
to be cautious about written confirmations that funds are a gift, if in fact
there’s an expectation the funds will be repaid in the future.
Smartline’s
executive director Joe Sirianni says that if parents are looking for the funds
to be repaid at some stage, a better option might be to assist via a family
equity guarantee.
“Putting
anything in writing obviously carries with it the assumption that what is
stated is completely true and correct,” Sirianni says.
“It’s
dangerous and dishonest to advise a lender that funds provided to your child
are a gift if in fact you want that money repaid at some stage.
“However,
we’re aware of many instances where people have provided a lender with written
confirmation that the funds are a gift in order to ‘get around’ the bank’s
lending criteria and secure the loan.”
The
greatest danger with this is in instances where the child receiving the money
has a long-term de facto partner.
If
the couple were to split up at some stage in the future, the house would be
considered a joint asset. The partner could argue that they have written
confirmation that the funds are a gift and not repayable and the partner could
claim his or her share of the equity that exists in the property.
“As
a result, parents could find that a large percentage of the funds they provided
to their child for the future is now in the hands of the child’s ex-partner,”
Sirianni points out.
“Consequently,
it may be that a family equity loan – where the parents use some of the equity
in their home to guarantee the child’s home loan – might be a better option.
“It’s
a much more formal and transparent arrangement, which still allows the child to
secure a home loan without the risk of potentially losing their parents’ funds
in the future.”
Parents
who do want to help their children buy a property should speak with an
experienced mortgage adviser about the most appropriate options.
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