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Bank of Mum & Dad is the 10th biggest lender in Australia...but is it all good news?

The current banking royal commission has highlighted many instances of unfair or predatory practices associated with parents providing security for children's loans.

Of course, children in these cases are grown adults themselves and have been involved with either purchasing property or in some cases buying businesses.

It's the business lending that is often fraught with more inherent dangers than the residential space. In fact the bank of Mum and Dad is now the 10 largest lender in Australia with some $20 billion in property purchased this way. Source here.

Did you know that a family member can help? I wrote a little about it here.

There are some potential pitfalls for family members, if you're not aware of them, but there are also some wins to help get the first home buyer into their first house. Of course, every situation varies

Here are a couple of things to note:

  • Not all lenders offer this as an option.

  • A family guarantee is limited to the amount required. For example; if the first home buyers need $50,000 then only that portion of the family members home is used as security.

  • Once organised, check in with your broker regularly to ensure that as soon as there is enough capital growth or enough equity gained from repayments into the house then the lender releases the guarantors. We do it annually on our client's behalf.

Come and see us anytime if you think this might be an option for you to consider. We can talk real numbers with you.