Property Market – Parents Assisting Children

The recent upward trend in the residential property market in Melbourne after a brief hiatus has meant that it is increasingly difficult for first-time homebuyers, generally young unmarried or married couples with or without children (grandchildren for grandparents) to enter the residential property market.

 

The immediate effect of this upward trend is that parents and/or grandparents are stepping in to assist the younger generation to purchase that much sought after first home. Even with the proposed government assistance that is hoped will alleviate the problem, the younger generation will still struggle to enter the property market.

 

For the younger generation lucky enough to be able to rely on the help and largesse of parents and grandparents, there are important issues to consider. Some of these are:

 

  1. Is the help being provided in the form of an out and out gift in which event the help provided cannot and is not expected to be recovered. Or Is the help being provided in the form of a loan.

 

  1. If a loan is contemplated then what are the terms of that loan and in particular:
  • when and how is the loan repayable;
  • is interest payable on the loan;
  • what security is to be provided for the loan;
  • who should be the borrower under the loan.

 

  1. What are the family law consequences in the event of separation or divorce of the young couple.

 

Properly documenting the arrangement between parents and/or grandparents and their child/grandchild is essential to protect the parents and/or grandparents losing funds which may be needed by them or from a claim being made by a spouse/partner in the event of separation or divorce of a young couple. Properly drawn loan and security documents are invaluable in these circumstances.

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