Bank First has launched a First Start Shared Equity Agreement (SEA), a loan agreement that enables parents to contribute to their children buying their own home and securing their future.
The Victorian-based customer-owned bank has said that the SEA, a formal legal agreement, acts like a “pre-nuptial agreement” between a “contributor” (such as the parent) and the home buyer (for example, their child).
The SEA defines the parties’ legal rights and obligations, while aiming to provide the security of a registered mortgage that is created specifically for parents and their home buying children
The lender has said that this marks the first time an Australian bank has launched an SEA.
Bank First suggested that the agreement can assist with “certainty and security of the arrangement as an alternative to gifting cash, acting as guarantor or co-purchasing a property while also addressing 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”.
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.
It is hoped that the service could “help to address the legal, financial and emotional challenges many parents face when it comes to supporting their children’s home ownership dreams”.
Bank First CEO William Wolke noted that there has been a significant increase in parents providing financial contributions to help their children afford a home, adding that the First Start SEA aims to solve “the problem of unclear informal loan agreements”.
“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,” Mr Wolke said.
“[W]hile 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,” he added.
Last year, a similar concept was launched by online platform Credi. The online platform aims to formalise money lending between family and friends by offering loan documentation, negotiation to a legal contract agreement, repayment reminders and ongoing loan management.
The platform also calculates the repayments and the interest, sending out reminder notices and allowing repayments to be modified according to cash received.
As well as home loan borrowings, Credi users are reportedly taking to the site to manage loans for renovations, car purchases, rental bonds or emergencies like unexpected medical bills.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.