By Rebecca Pike
A bank has launched a service to help address the legal, financial and emotional challenges parents can face when supporting their children in buying a home.
Bank First, which was founded in 1972, is rolling out a Shared Equity Agreement (SEA), which it said is like a “pre-nuptial agreement” between a “contributor” and a home buyer.
It defines everyone’s legal rights and obligations, provides the security of a registered mortgage and enables proper disclosure to the home buyer’s bank lender.
The First Start SEA can assist with certainty and security of the arrangement as an alternative to gifting cash, acting as guarantor or co-purchasing a property.
It also addresses some of the common risks that stem from a lack of clarity between a home buyer and contributor as to the arrangements and unforeseen circumstances over the life of the loan.
Bank First CEO William Wolke said there had been a significant increase in parents providing financial contributions to help their children afford a home, with “the Bank of Mum and Dad” now reported to be worth more than $20billion.
He said the First Start SEA solves the problem of unclear informal loan agreements, which may not address all possible circumstances.
These loans if not secured are vulnerable to being unenforceable and can impact this significant financial decision.
This is a written loan agreement and registered mortgage that is created specifically for parents and their home buying children. It enables parents to help the home buyer with a deposit and can even substantially reduce the amount of their bank loan.
Wolke added, “We created the SEA to support home buyers in a way that not only helps them get into the property market but provides protections for both the home buyer and parents or other family members.
“At Bank First, we’ve listened to our customers and understand that affordability is the number one concern for first home buyers in Australia. Despite low interest rates, many young people are unable to save for the magical 20% deposit or avoid incurring Lenders Mortgage Insurance costs.
“And while many parents are keen to help get their children into their own home there is a risk of legal disputes and family breakdowns when informal family loans and contributions go wrong. The First Start SEA provides parents and children with peace of mind.”
The First Start SEA provides the home buyer with an alternative to using funds provided by family as part of their property purchase to help them acquire a home loan.
In exchange for their monetary support, it entitles the contributor to repayment of the same share of the sale proceeds of the home as they contributed to the purchase costs.
Wolke said the SEA also helps the homebuyer own their property sooner and avoid paying Lenders Mortgage Insurance.
The SEA complements Bank First’s ‘Home First’ website portal launched earlier this year.
Home First uses real-time data to guide home buyers through the process and provide property options based not only on their budget and desired location, but their lifestyle aspirations.
As a customer-owned bank, Bank First’s very first loan was to a single mother for a bond to acquire housing for herself and her two children.