On 30 July 2013 David contributed to the debate on Kerre McIvor’s ZB Talk Back about the new Westpac Springboard Family Home option.
The option involves the borrower’s family taking out a loan against the equity in their family home to “top up” the borrower’s deposit. Westpac’s website gives an example of a Springboard home loan of $75,000.
David warned that there were the following fish hooks for parents in such an arrangement:
- Providing the assistance might disqualify the parents from eligibility for a residential care subsidy or other government help in theThis risk might be minimised by the parents’ assistance being clearly identified as a loan, rather than a gift and, better still (although Westpac probably wouldn’t allow it) the loan being secured as a subsequent mortgage over the child’s home.
- Treating the assistance to the child as a loan, rather than a gift, will also protect the child in the event of a relationshipOtherwise, there is the danger of a child’s partner “double dipping” – by receiving the parent’s gift to their child plus claiming a half share from the child on a relationship breakdown.
- Where the parents have more than one child, they need to review theirDavid recommends the use of a “hotchpot” clause . That will bring into account any loan or gift made by the parents to any child. The loan or gift will then be deducted from the child’s share on distribution of the parents’ estate. Where this doesn’t happen, other family members can be disadvantaged by their sibling receiving the same amount as they do in addition to the loan or gift.
- Any parent wanting to assist their child would be able to borrow on their equity from their ownIn fact, this may be a betteroption than borrowing from the same bank as the child uses. That is because the parents mortgage to (say) ASB will “ring fence” their debt to the loan they arrange. If the parents borrow from Westpac also, then there is a danger of them becoming liable for the child’s additional borrowing. Using different banks is the best way to “ring fence” both the parents’ and the child’s borrowing