Brokers warned about ‘dangerous and dishonest’ trick

Smartline Personal Mortgage Advisers executive director Joe Sirianni said brokers need to advise parents to be cautious about written confirmations that funds are a gift, if in fact there is an expectation the funds will be repaid in the future.

He said parents who want their children to repay the funds over time should consider assisting via a family equity guarantee.

“It’s dangerous and dishonest to advise a lender that funds provided to the child are a gift, if in fact you want that money repaid at some stage,” Mr Sirianni said.

“However, we are aware of many instances where people have provided a lender with written confirmation that the funds are a gift in order to ‘get around’ the bank’s lending criteria and secure the loan.”

Mr Sirianni noted the greatest danger is when the child receiving the money has a long-term de facto partner, because if the couple were to split, the house could be considered a joint asset.

“Consequently, it may be that a family equity loan – where the parents use some of the equity in their home to guarantee the child’s home loan – might be a better option,” Mr Sirianni said.

“It’s a much more formal and transparent arrangement which still allows the child to secure a home loan without the risk of potentially losing their parents’ funds in the future.”

Written by Staff reporter

Last Updated: 09 March 2022

Published: 24 March 2015