subscribe to our newsletter sign up

Parents must be cautious when lending to their kids

Lending, parents, Fathers' day, property market, finance, wealth management, retirement planning, retirement savings,

Young Australians are increasingly turning to their parents to help them enter the property market, but the so-called ‘Bank of Mum and Dad’ needs to be cautious when lending to children.

Data from research company Digital Finance Analytics suggests the average amount lent by parents to their kids to help them buy property is more than $88,000 and that cumulatively, the amount lent by parents to their children in Australia is estimated to be at least $16 billion

Melissa Browne, a financial adviser and CEO of wealth and accounting firm A&TA, said parents need to “proceed with caution” if they choose to lend to their children, and suggested those who do wish to help their kids enter the increasingly expensive property market should think carefully about how they do so.

One way parents can help, Ms Browne said, is lending or gifting them the deposit they’ll need to purchase the property, and that some parents “may even opt to co-own” the property with their children.

Parents could also consider unlocking some of the equity in their own home or property to help finance this, but urged those parents to ensure their children understood the risk this would present before doing so.

“It is unhelpful to everyone concerned if you assist your children with a deposit and they subsequently find the mortgage repayments burdensome, so it’s important not to over-extend on borrowing and to make sure from the outset that the loan can be repaid at an interest rate of 8 per cent,” Ms Browne said.

“Then you will be in the strongest possible position to help your kids later, when they may really need your financial assistance”.

 

Parents must be cautious when lending to their kids
nestegg logo
subscribe to our newsletter sign up
FROM THE WEB
Recommended by Spike Native Network
Don - Yet another Y2K issue....
Dr Terry Dwyer, Deye... - Why is it a tax break to get credit for tax paid?....
anon - All those people leveraged into 4 or 5 properties with interest only loans probably employ a large number of people.....
Peter - Gross profit/loss on real estate sales is not a helpful indicator for mum and dad investors. We would really like some more rounded data including the.......