For us who are far too old, we’ve seen the cycle. The property market goes up; the kids can’t afford a deposit; the kind parents and grandparents lend the deposit and more to the kids.
It is so difficult in this market for young adults to save the deposit that allows them to purchase the property. It used to be 10% but the banks now want 20% to satisfy the loan mortgage insurance. If you’re in a market where the average price is $600k – $1 million, the kids must find a way to save somewhere between $120k and $200k just for the deposit. This doesn’t consider the massive wad of stamp duty that state government wants out of the purchaser. It is a large cost to be placed on any person.
There are many publications that have had articles regarding people in their twenties and early thirties who have given up on their dream of a property. They’ve invested in their lifestyle, rather than investing in property. This is an excellent pursuit until coupledom appears and a family becomes a realistic goal. Then, the necessities of a home become apparent.
This is not the first generation who have had to borrow from parents and grandparents to get into a property. There are a range of options:
- The parents and grandparents pull out cash to help;
- The banks ask for a personal guarantee from the established ones to assist in acquiring the loan.
If you are lending money to a couple, remember there is only one of those who is a member of the family. This means that, one of them may at some point, be no longer a member of the family.
Leverage has a case on our desk at the moment where the grandparents loaned a large sum of money to their grandson and his wife to purchase a property. There was a loan agreement drafted between friends and not in case of a dispute. No repayments were made under the loan, and no one had any evidence of whether money had ever changed hands in repayment of this loan. Now, they have separated.
If you are going to lend money to family members, please ensure the following is undertaken:
- There is a loan agreement in place which expires upon a separation;
- There is a power to become a first or second mortgagee over the property to protect your interest;
- There is a right in the contract, allowing you to take possession and sell the property in the case of a separation;
- A caveat should be lodged on title, so your interest is not affected;
- A record of every payment is kept by way of a ledger; and
- Dial someone else in, a family member or friend, to oversee the management of repayments.
In this case, one of the parties acquired Alzheimer’s. Just remember we all age, and sometimes these memories lapse. Having another person to assist you to oversee the loan is absolutely vital.
It’s okay to help out the kids, but make certain you’re protected when the kids no longer care about each other.
This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.
To get in touch with Bailey, please email email@example.com.