If you’re considering lending or giving your offspring money to buy a home, you’re not alone. Around 30% of first home buyers using the “Bank of Mum and Dad”*

There are a few things to look out for before taking this step, to make sure you’re looking out for yourself as well as your child.

Make sure you’re repaid

Of the parents who provide their offspring with a loan, two-thirds don’t expect to be paid back.

If your contribution is intended as a loan rather than a gift, it’s important to seek independent legal advice. This can help you put into writing the terms of the loan, interest rates, repayment conditions and clarify other relevant issues.

This preparation and setting of expectations can help to prevent relationships turning sour over crossed wires.

Declare any gifted money

If you decide to give money to your grown-up child as a gift, you’ll need to check the implications of this first.

For example, if you receive a pension or other Centrelink payments (or plan to down the track), you need to declare any money you gift to others. This gift might affect your payments and, depending on the amount of the gift, it might also affect your tax, and that of your offspring.

If you’ve gifted your child a house deposit, you might also need to provide them with a letter or statutory declaration, which they need to pass on to their lender. This document would state that the deposit is a gift, not a loan.

Consider family relationships

When money is involved, emotions can run high.

If you have more than one child, it’s worth considering whether you’ll provide a loan or gift of the same value to the others as well. If not, think about how you can manage these relationships to avoid jealousy.

It’s also worthwhile updating your will following a loan to a family member. You may need to specify in your will what you’d like to happen with the outstanding debt, and make sure that other beneficiaries won’t be disadvantaged by this.

Check your own finances

Whether you lend or gift money to your offspring to help with their home purchase, it’s vital that you don’t put yourself under financial stress to do so.

Always seek trusted financial advice to make sure you aren’t depleting your retirement savings or putting yourself in financial risk.

* https://www.homeloanexperts.com.au/blog/news/bank-of-mum-and-dad/

Disclaimer: This article is not legal or personal financial advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every reasonable care has been taken in distributing this article, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information contained within it. Any views expressed are those of the author(s) and do not represent the views of Australian Unity Personal Financial Services Ltd. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Taxation Information in this document should not be relied upon without seeking specialist advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459, 114 Albert Road, South Melbourne, VIC 3205. This document produced in December 2018. © Copyright 2018