More first home buyers pressuring parents for early inheritance

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First home buyers are applying pressure on family members in the hope they will give them an early inheritance to help them get a foothold on the property market.

While early inheritances are often willingly gifted by parents sitting on increasing equity in the family home, first home buyers circling the housing market are broaching the subject with parents and extended family as successive interest rate hikes hit hard.

First home buyers are applying pressure on family members for an early inheritance to help them get a foothold on the property market.Credit: Peter Rae

‘The bank of Mum and Dad’ is a term often used to describe parents’ financial assistance to their children to buy a house, with the ‘bank’ ranking among the top 10 lenders in Australia as first home buyers face growing costs to borrow money from lenders. Last week the Reserve Bank of Australia handed down its 12th interest rate hike since May last year in a bid to tackle persistently high inflation.

The 2021 Productivity Commission report projected that Baby Boomers will pass an estimated $224 billion each year in inheritance by 2050, prompting more open discussions about the option of gifting assets from an estate while the gifter is still living.

Legal experts admit they sometimes need to step in when children feel a sense of entitlement to their parents’ money. However, undue pressure into giving or loaning money can tip toward financial elder abuse, which 42 per cent of older Australians admit has happened to them.

“We have seen circumstances where children apply undue pressure on their parents to lend money or downsize out of the family home just to help them purchase their first property,” says Suzanne Jones, partner and head of estate planning at Coote Family Lawyers.

“We have to be very careful in those circumstances,” she says.

Financial gifts usually range between $200,000 and $300,000, and in some cases are designed to help adult children avoid paying Lenders Mortgage Insurance.

While gifting money to adult children enables parents to understand how their bequest will be used, and gives them the opportunity to offer advice, many worry the financial gift would be split in the event of their child going through a relationship breakdown.

Suzanne Jones, head of estate planning at Coote Family Lawyers, says they have witnessed situations where children apply undue pressure on their parents to lend them money.Credit:

“In that case we suggest a binding financial agreement if their child is already in a relationship or, potentially, a loan agreement with a 10- to 15-year payback with interest payable on some of the capital,” Jones says.

Family lawyer Stefani Janson recommends getting legal advice with the view of drawing up a financial agreement before the funds are handed over. “Unfortunately, what we see is the aftermath of a breakdown of a relationship, with no paperwork in place,” Janson, of Melbourne’s Carew Counsel Solicitors, says.

In that instance, lawyers consider the intention of the gift, who and what the money was intended to be used for and whether there was an expectation that it was a repayable loan, and what other conditions were in place, Janson says.

Without the help of their parents, plenty of young Australians will be priced out of the market, says Sarah Megginson, money expert at Finder.

“Recent property price hikes combined with interest rate rises have made it extremely tough for young buyers to save a sufficient deposit, let alone qualify for a home loan,” she says.

However, older Aussies should ‘put their oxygen mask on first’. “The risk is that the parents who contribute to their children’s property purchase could do so to their own detriment, hurting their retirement fund and potentially running out of money later in life,” Megginson says.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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