FAQ: Should I lend or gift money to my children to help them buy property?

Short answer: Ultimately your own financial situation determines whether you are able to help your children in this way. But if you can afford to, it's strongly recommended to structure the payment as a fully documented loan. 

Can you afford to help your children buy property?
Before you decide between gifting and lending, make sure you have done the groundwork to confirm your own financial position can handle it. We strongly recommend speaking with a qualified financial planner as part of this process if you are unsure. Be confident in knowing that it is ok to say to your children that you are unable to help them buy property. Ultimately, you and they are at different stages of life and you shouldn't feel the need to compromise your own position to assist them. However, if you are confident that you can afford to help, you are ready to consider whether a gift or a loan is the right approach. 

Why might you help your children in this way?
Despite a recent slowdown in price growth, the property market in Sydney and throughout NSW remains expensive. It takes longer than ever before to save for a deposit, tempting young people to purchase with only a 5% deposit available. While this is a fair option for young people to pursue, it is locking them into long term debt and leaves them vulnerable to interest rate rises. For these, and other reasons, you may decide to help your children into the property market.

Why should you have a formal loan agreement with your child?
We strongly recommend completing a formal loan agreement with your child. It has several important benefits.
A loan agreement helps ensure the funds are used for the purpose you intend. It can also help protect the money you have lent if your child experiences a relationship breakdown that involves a property division. It protects you as well. If your relationship with your child breaks down, and we all know money can bring out the worst in people we never expected it from, a formal agreement gives you a clear record of what was agreed.  A loan agreement also helps protect your other children. It ensures one child is not unfairly favoured financially over the others, which can prevent the family difficulties that often follow. Finally, it helps ensure you are repaid when the property is sold.

These are just some of the reasons a parent should consider a loan agreement. If you would like to discuss whether one is suitable for you, give our team a call.

This article is general information only and isn't legal advice. Everyone's circumstances are different so please seek professional legal advice tailored to your needs. 

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