Tag Archives: Bomad

Family Loans and Gifts – Here There Be Dragons

Helping out a struggling family member always begins with goodwill and the best of intentions.

But gifts and loans between family members all too often result in family disputes and litigation which could easily be avoided with some simple precautions.

The incredible rise in house values, the economic consequences of COVID-19 and the rising cost of living, mean lots of Australian families will be relying on family to help out more than ever and that support is likely to take the form of financial assistance.

Safeguarding the bank of Mum and Dad

More parents are helping their children financially to get ahead.

So what are some of the considerations when gifting or lending money to ensure everyone’s interests are protected?

The ‘Bank of Mum and Dad’ now helps the majority of first home buyers get onto the property ladder.

It’s an act of generosity that can come at a price if it’s not done in the right way.

Legal Risks for BOMAD

As a specialist law firm helping multiple generations of Austrlain families protect themselves, their families and their asset, Genders and Partners has taken warning of the potential risks of parents assisting their children with entering the housing market, particularly if the children separate from their spouse.

BOMAD loan arrangements and financial agreements are increasing as the Millennial cohort borrow funds from their parents amid rising property prices.

BOMAD Buyers Beware

Buyers beware, especially the growing number of parents and grandparents of young Australians who are turning to the ‘bank of mum and dad’ for help stumping up home loan deposits.

Accounting for $29 billion annually, BOMAD is the nation’s ninth-largest mortgage lender and a port of call for almost 4000 Australian “kidults” every month.

While it’s natural for parents and grandparents to offer what they can, there is a real concern that adult children who borrow from parents are three-to-five times more likely to default on their mortgage within five years.

Going Guarantor

In the world of BOMAD (the Bank of Mum and Dad), there will often come a question that should fill parents (and grandparents) with dread: Will you go guarantor for my loan?

A guarantor home loan is when someone, usually a close relative like a parent, offers up part of their home equity as security to top up the buyer’s cash deposit.

It means the buyer only needs a small deposit or sometimes none at all, and avoids paying costly lender’s mortgage insurance (LMI).

Can you afford to be the Bank of Mum and Dad?

As property prices enjoy a post-pandemic resurgence, an increasing number of first home buyers are being priced out of the market.

While a boon for homeowners, it’s a different story for those trying to get a foot onto the property ladder.

According to recent analysis, the Bank of Mum and Dad is now ranked as Australia’s ninth largest mortgage lender, lending adult children an average of $89,000 … lending that’s increased approximately 20% over the past 12-months.

The Bank of Mum and Dad (BOMAD). The pressure’s on.

It won’t have escaped your notice that there is increasing pressure in the first-home buyer space.

The youngsters cannot save enough – quickly enough – to keep ahead of the spiralling house prices.

They are under pressure.

And they sometimes pass that pressure onto their parents and grandparents, asking them to help them with the deposit.

Huge rise in Bank of Mum and Dad loans – Be Careful!

In 2021 Australia, experts are reporting that more than 60 per cent of first home buyers are relying on their parents to help buy their properties, with the average contribution rising to a record $93,000 – an increase of about 26 per cent in the past 12 months.

The Bank of Mum and Dad (aka BOMAD – a colloquial expression to describe parental lending) is estimated to have outstanding loans of about $35 billion, which makes it the nation’s ninth-largest mortgage lender – bigger than AMP, Citigroup and HSBC Australia, according to analysis by an independent market analyst.