Family support can help a buyer enter the market sooner, but the arrangement needs to be understood by everyone.
Parents and other family members increasingly want to help the next generation buy a home. The support may be provided through a cash gift, a limited security guarantee or another arrangement, depending on the family’s goals and financial position.
We explain the lending options and lender requirements, coordinate the application and encourage each party to obtain appropriate independent legal, tax and financial advice before proceeding.
Common forms of family assistance
Genuine gift
Family contributes funds that do not need to be repaid. The lender may require a gift letter or statutory declaration and evidence of the funds.
Limited security guarantee
A family member provides additional property security for a defined portion of the loan. This may reduce the deposit shortfall or lenders mortgage insurance, subject to lender policy.
Family loan
Funds are advanced with an expectation of repayment. The lender will generally need to understand the terms and may treat the commitment as a debt.
Co-borrowing or joint ownership
A family member becomes legally responsible for the debt or shares ownership. This is a significant commitment and requires careful legal and financial consideration.
Understanding a guarantee
A guarantor may become responsible for the guaranteed amount if the borrower cannot meet the loan obligations and the lender suffers a loss. The guarantor’s property may also be used as security. A limited guarantee can restrict the exposure to an agreed amount, but the legal and financial risks remain important.
Independent advice is essential
Guarantors should receive independent legal advice and may also benefit from financial and tax advice. The arrangement should be considered alongside retirement needs, estate plans, family fairness and the possibility that circumstances change.
How we help
- Compare family-assistance pathways and lender policies.
- Estimate the required guarantee or contribution and explain how it may be reduced or released later.
- Clarify the documents and evidence each party will need.
- Coordinate the borrower and guarantor components of the application.
- Work with the family’s legal, tax and wealth advisers where authorised.
- Build a post-settlement plan to review the guarantee as equity and repayments improve.
Intergenerational planning
Helping a child buy property can be part of a broader intergenerational wealth-transfer strategy, but lending is only one component. Accru Melbourne can connect the family with the appropriate tax, wealth and estate-planning specialists so the support is considered in the context of the family’s wider objectives.
Book a no-obligation initial discussion with Jayden Chen to understand your current position and next steps. Call us on (03) 9835 8200.
