Family loans to fund home purchases carry hidden legal and relational risks
Research shows that informal money from parents to adult children, often called the “bank of mum and dad,” can create legal uncertainties and strain family ties.
With housing becoming unaffordable for many young Australians, parents increasingly provide financial support that the Productivity Commission estimates could rank among the top mortgage lenders if it were a formal bank. Julia Cook’s research of 80 families in Gadigal Country/Sydney revealed average contributions of $75,000, with some cases reaching $500,000, often given without written contracts. Participants frequently could not distinguish whether the money was a gift or a loan, leading to “fuzzy” expectations that shift over time.
Relationship experts such as Elizabeth Shaw and family lawyer Gabriella Pomare caution that this opacity can damage sibling relationships and expose parents to financial loss, especially if the borrower separates or the parent nears retirement. They advise clear, legally binding agreements covering amount, interest, repayment triggers, and estate planning, or alternatively, directing children toward professional financial advice instead of direct cash support.
Why it matters
Unclear family loans can jeopardize both finances and relationships, affecting many Australians seeking home ownership.
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