A Leg-up
onto the
Ladder

After a period of prohibitively high property prices,
first home buyers are now taking advantage
of the slowing property market and taking the
leap to property ownership. Some are looking at
alternative ways to secure their first home, such as
the ‘bank of mum and dad’. Many first-time buyers
are given assistance from family to purchase a
first home. This can be done in several ways:

Gift Usually the bank’s preferred option, it involves the
family member signing a deed of gift stating the funds
have been gifted outright. If first home buyers are married
or in a de facto relationship, the gift will generally become
‘relationship property’. A relationship property agreement
(aka pre-nup) should be considered.
Deed of Acknowledgment of Debt The first home
buyer and the lending party (parents) sign a Deed of
Acknowledgment of Debt stating the loan is interest-free
and repayable either ‘on demand’ or on the sale of the
property. Banks are increasingly more agreeable to this
option.
Loan agreement with requirement to pay interest
This option is generally not favoured by the banks, so a
likely barrier to first home buyers getting a loan approval.
Guarantee provided by parents This involves the
parents (or other related person) using the equity in their
own property as security for the first home buyer’s loan.
The guarantor must get independent advice from their
own solicitor before signing the
guarantee. The guarantee may be unlimited but can be
limited to a certain amount on request. A riskier option for
parents, so consider carefully.
Co-ownership with friends and family Purchasing
a first home with friends, siblings or parents is another
solution. All parties have their names on the property’s
title as ‘tenants in common’ in equal or unequal shares,
with all jointly liable for the mortgage. It’s essential for
the parties to enter into a Property Sharing Agreement
recording the terms of the co-ownership arrangement.
It’s essential to get legal advice before entering into
any of these arrangements.