Parents need to be careful when helping out first-home-buyer children

The media has recently been reporting that from 1 October 2013, first home buyers are more likely to be required to make a 20% deposit in order to get into the housing market. This may increase the number of parents that are helping out their kids with their first house purchase. However, the media reports have also carried warnings to parents to be careful in this situation.

Some important things to think about if you are planning to assist your children with their first house purchase include:

1. How will you help them? For example, you may have equity in your own home that could be used as security, or you may have money that you could lend or gift to your children. You may also have a family trust that is able to help out.
2. If you plan to gift money to one of your children and he or she is in a relationship, what happens to the money if the relationship breaks up? Even if a family trust gifts money to your child, your child’s partner may still be able to claim a 50% share in that money.
3. If you are guaranteeing your child’s borrowing is it a limited guarantee or an all obligations guarantee? What are the possible consequences for you if they default on their loan? You might not realise that the bank may choose to pursue you even before they pursue your child, and also that you could be unknowingly guaranteeing your child’s future borrowing as well. This could put your own family home at considerable risk.

It is very important to get good, independent, legal advice if you are considering assisting family with a property purchase, especially if you intend to act as guarantor.

You should seek advice prior to your child/children confirming a contract as “unconditional” otherwise you may find yourself with added pressure of entering into something that you are not happy to do.