Lending money to children

By Robert Lamb, Director at Hillhouse Legal Partners
| 4 min. read
family law Wills, Estates & Trusts

Key takeaways

  • The booming property market has reportedly led to more parents helping their children buy a house.
  • There are many legal issues to consider including loan defaults, your Will and changes in your circumstances.
  • It’s legally recommended to have at least written loan documents and a registered mortgage.

The current booming property market has reportedly led to more parents guaranteeing loans, mortgaging their own house or lending money to their children so they can buy a house.

Read the report here.

Before you, the Bank of Mum and Dad, decide to help out the kids in this way, we suggest you first obtain independent legal, accounting and financial advice to review your options and discuss potential legal issues.

Some of the legal issues to consider include:

  • If you guarantee the loan and there is a default, the bank may turn to you to repay the loan plus interest and costs;
  • In the worst-case scenario, you could lose your house;
  • Even if you trust your kids, if they get divorced or sued in the future, you could lose your money;
  • Your Will and Estate Plan should deal with the loan, should you forgive the loan in you Will? If you have given a loan to one child and not another, should you adjust your gifts in your Will?
  • What if your circumstances change and you need the money back?

You should also consider:

  • Interest;
  • The term of the loan;
  • Ranking below the bank (if there is one);
  • How and when you will be repaid.

From a legal point of view, generally we recommend at least written loan documents and a registered mortgage.

We can advise you in relation to a proposed loan to your children as well as help you document the transaction and the security. To make a time to discuss your personal circumstances simply send us an email or call 07 3220 1144.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.