Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


“Bank of Mum and Dad” financing can risk your credit

Media Release
“Bank of Mum and Dad” financing for kids can put your credit rating at risk
14 January 2013
A recent survey shows high property prices have sparked one in three Australians to seek financial assistance from their parents for their first home, but an advocate for credit reporting accuracy warns that if assistance extends to a parent equity loan, parents need to know there are significant risks to their credit rating.

ING Direct’s recent global survey, as reported in Australian Broker reveals that the average age of a first home buyer in Australia is now 26 years old, with one in three tapping the “Bank of Mum & Dad” to put their housing finances on a firmer footing. [i]

The research found that the younger the age group, the more likely they are to have received financial help. Over half of 18-24 year old homeowners received money either towards their purchase or to help with home loan repayments, compared to 38% of 35-44 year olds and only 22% of those aged over 55.
CEO of MyCRA Credit Rating Repair, Graham Doessel says in some cases putting up a deposit is not enough, and the parent is required to go guarantor or put up equity to secure the loan for their child.

But the danger for parents is that their credit rating is then linked with the credit rating of their child through a loan like this, despite parents having little control over the outcome of repayments.

“If for some reason repayments are not met, the parent becomes liable for this debt, and may be defaulted along with the child. Unfortunately they may not be aware the loan is or was in default until such time as they attempt to take out credit for themselves and are refused,” Mr Doessel says.

He says a negative entry on a person’s credit report will mean it is difficult to get credit. He says defaults impact the ability to obtain credit for 5 years, and even too many late payment notations may make things difficult for 2 years.

“In cases of significant arrears, the bank begins to use the property the guarantor put forward as collateral to recover lost debts. The guarantor is in danger of losing their home,” he says.

He suggests parents considering going guarantor on their child’s loan should sit down and ask some tough questions before committing.
“The most important question parents need to be asking is ‘could we make the repayments on this loan should our child be unable to?’ If in doubt, don’t risk your good name to guarantee the loan,” Mr Doessel says.

With ING reporting that three-quarters of Australians still agree it’s better to buy than rent, Mr Doessel says parent equity and guaranteed loans may continue to rise.

He recommends parents take some things into consideration before signing off on the loan:
1. Seek independant and or legal advice prior to any agreement being made.
2. Insist there is safety net for anything that may go wrong during the term of the loan, such as life insurance and income protection insurance.
3. Set a specific amount that will be guaranteed.
4. Ensure there is an ending to the time period of the guarantee.
5. Request a copy of all bank statements during the course of the guarantee, so that parents are aware of any late payments. This way, payment problems can be addressed prior to any defaults, and while the parent’s good credit rating is still intact.
--

MyCRA Credit Repair is Australia’s number one in credit rating repairs. We permanently remove defaults from credit files.

[i] http://www.brokernews.com.au/article/aussies-fear-next-generation-wont-be-able-to-afford-to-buy-homes-147718.aspx

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: NZ Dollar Catches Breath After "Goldilocks" Slump

The New Zealand dollar edged up following its dramatic slump yesterday after the Reserve Bank confirmed speculation it intervened in the currency market last month and PM John Key suggested a “Goldilocks” level far lower than at present. More>>

ALSO:

Biosecurity: Kiwifruit Claim To Hold Officials Accountable For Psa

Kiwifruit growers have joined forces to hold Biosecurity NZ accountable in the courts for its negligence in allowing 2010’s Psa outbreak that devastated New Zealand’s kiwifruit industry and exports. Foundation claimants representing well ... More>>

ALSO:

Poison: Anglers Advised Not To Eat Trout In 1080 Areas

With the fishing season opening in just a few days (1 October 2014), anglers are being warned by the Department of Conservation(DOC) not to eat trout from pristine backcountry waters and their downstream catchments, where the department is conducting 1080 poisoning operations. More>>.

ALSO:

Quotas: MPI Swoop On Suspected Fraudulent Fishing Activity

Ministry for Primary Industries (MPI) compliance officers swooped on a Hawkes Bay fishing enterprise today to secure evidence in an investigation into suspected fraudulent activity... “The investigation involves activity throughout the commercial supply chain – catching, landing, processing and exporting.” More>>

ALSO:

Scoop Business: Fonterra Slashes 2015 Milk Payout, Earnings Tumble 76%

Fonterra Cooperative Group cut its forecast 2015 milk price payout by about 12 percent, citing weaker global dairy prices and said there is a risk of further declines given strong global milk production. More>>

ALSO:

Scoop Business: RBNZ Keeps OCR At 3.5%, Signals Slower Pace Of Future Hikes

Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent and signalled he won’t be as aggressive with future rate hikes as previously thought as inflation remains tamer than expected. The kiwi dollar fell to a seven-month low. More>>

ALSO:

Weather: Dry Spells Take Hold In South Island

Many areas in the South Island are tracking towards record dry spells as relatively warm, dry weather that began in mid-August continues... for some South Island places, the current period of fine weather is quite rare. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand

Mosh Social Media
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news