The “Bank of Mum and Dad” (BoMaD) is not only still open; it’s doing record business here in Australia and around the world.

According to research by financial service group Legal & General, 47% of all homes purchased by buyers under 55 in the United Kingdom will be supported in some way by other family members – parents, siblings, and grandparents.

In New Zealand, the BoMaD is the fifth biggest lender, according to data released last year by Consumer NZ. In Australia, it was recently ranked by Digital Finance Analytics (DFA) as the ninth biggest mortgage lender.

So where are parents and grandparents getting the money to help their offspring on to the first rung of the property ladder?

Traditionally, they have stepped up in one of three ways:

1. Raiding their own savings and other nest eggs, which can negatively impact their retirement plans.

2. Acting as a mortgage co-borrower, which means they’re liable for any repayments missed by their child.

3. Acting as guarantor on the mortgage, which can constrain their ability to borrow and may put their property at risk if their child defaults on mortgage repayments.

There is another way that removes these risks: unlocking your home equity with a Household Loan from Household Capital.

With a Household Loan, regular repayments aren’t required, and the loan doesn’t have to be repaid until the last homeowner leaves your home or it is sold. At the same time, repayments can be made at any time without penalty.

The loan’s flexibility means your child can agree to a regular repayment schedule, such as regular interest-only repayments or a future lump-sum repayment.

The Household Loan is governed by the National Consumer Credit Protection Act, which provides a number of protections; these include lifetime occupancy of your home and a “no negative equity guarantee” that means you or your estate cannot owe more than your home is worth, regardless of what happens to the value of your property.

Before you give your children or grandchildren money towards a home, you must be clear on whether it’s a gift or a loan.

If it’s a gift and you receive the Age Pension (or other benefits) you must declare it to Centrelink. The annual limit for gifting is $10,000 (or $30,000 over five years depending on your situation) – anything above that may affect your entitlements for up to five years.

If it’s a loan, it can still impact your pension entitlements. If you lend your children money, that loan is treated like an investment by Centrelink, with a deemed rate of return – even if your kids weren’t expected to pay you interest or stop paying the interest you agreed.

When it comes to money and our children, emotions can run high. If you use a Household Loan to be the Bank of Mum and Dad, it has to be right for you as well as the right thing to do by your kids.

It is important to be sure your retirement funding is established before helping the next generation.

Household Capital’s Household Loan enables you to help your children when they need it most and enables you to unlock your home equity to help the next generation build theirs.

To learn more, download our free e-guide: 6 Ways to Use Your Home Equity.

Or to see how much home equity you could access, try our easy-to-use calculator.

Prefer to speak to a real person? 

Speak with one of Household Capital’s retirement specialists for a 15-minute no-obligation call on 1300 699 624.

Or book a time that suits you to ask questions and discuss your needs. Schedule a call.