With so much talk recently focusing on rising property prices, and concerns about affordability growing proportionately, many readers will not be surprised to know that an increasing number of first home buyers are relying on financial support from their parents in order to get their foot in the door.
In fact, recent analysis by financial researcher Digital Finance Analytics (DFA) has found that the average level of parental support for first home buyers has risen by around 20 percent in the past twelve months, reaching the remarkable average of $89,000!
These figures would rank the “Bank of Mum and Dad” (as it is often referred to) among the top 10 residential mortgage lenders in the country, ahead of lenders like Bank of Queensland, AMP and HSBC.
A number of Mortgage Brokers we have spoken to recently have confirmed this trend, saying that some parents view this assistance as a form of ‘inheritance in advance’. Of course, we need to remember that these cash gifts often come on top of other forms of indirect assistance such as rent-free accommodation or free childcare.
One thing that often gets overlooked where parental support is part of a property purchase is the need to spell out the terms of this support very clearly so that there are no misunderstandings later. Keep in mind that circumstances can change over time, so everyone needs to agree as to whether the assistance is a loan or a gift, and if it’s the former when it needs to be repaid. It is also important to be clear in what happens in the event of a relationship breakdown, a death in the family, or the subsequent sale of the property that is being purchased.
The best way to do this, even though the arrangement is within the family, is put all the details in writing, even if you don’t want to go to the lengths of getting a legal agreement drawn up. This will, at the very least, avoid disagreements over “who said what to who, and when”.
We would also recommend that before providing any parental support, you get some experienced tax advice to ensure that you are not creating any potential headaches in the future in regards to capital gains or retirement benefits.
Of course, if you or a member of the family is currently looking for an ideal first home, one of the best gifts possible in this situation is experienced, objective advice and guidance, whether you need help sourcing the right property, or someone to handle the negotiations or bidding on your behalf.
The team at Ian Reid Buyer and Vendor Advocates are ready and able to assist you in all your property dealings, so why not give us a call on 9430 0000 today to discuss your options? You’ll also find plenty of helpful suggestions for property sellers in our free booklet, “Fatal Real Estate Traps Exposed”.