PRESS RELEASE: New Study Reveals Australians at Risk as Informal Loans from ‘The Bank of Mum & Dad’ Rise

Sydney. Aug 7, 2024:
Lenders using The Bank of Mum & Dad are not taking adequate steps to safeguard themselves from risk according to a new study undertaken by money lending platform, Chipkie. [https://www.chipkie.com]

The Chipkie study interviewed Australians intending to borrow from their parents or family to purchase a home in the next 12 months and found that only 39% intended to legally document the loan in a contract; 30% did not intend to enter a contract at all; and a further 30% did not know a formal contract was necessary. This same study cited the flexibility of repayment terms with family and the lenders’ financial stability as the top reasons for borrowing, indicating a false sense of security around perceived flexibility that may put lenders at further risk.

These findings support the results of a wider Australian study which revealed 60% of first-time home buyers are turning to informal familial loans—a dramatic rise of 3% from just over a decade ago – than borrowing money via registered financial institutions. Further to this, rises of inter-generational lending have been reported for private school tuition fees, holidays and household expenses, not just home loans, were also on the rise.

Michelle Lomas, Founder of Chipkie, said: “Given that many young Australians are turning to The Bank of Mum & Dad, the fact that large dollar loans are not being formally contracted is very concerning.
“We are seeing loans as high as $450,000 coming through Chipkie, with payment terms spanning as much as 20 years or more. When you consider over such a long period that life moves on: people get married, divorced or pass away; and conversations are forgotten or can be misconstrued over time, the need for a formal contract escalates.

“Without formal documentation, getting into a ‘she said/he said’ battle on the terms is very likely. These results are particularly concerning considering the size of loans, and what is at stake – not just the loan amount itself – but the relationships between family members as well.’

Georgia* from Sydney experienced a lengthy and expensive battle to have a loan recognised during her divorce proceedings. She and her ex-husband had borrowed $100,000 from her parents to purchase their family home. At the time, she never considered that the marriage would end in divorce, but less than 12 months later. As the loan was not documented in a contract, the courts sided with her ex-husband and agreed there was no proof of a loan and it should be considered a gift. The amount was then split into the asset pool, leaving Georgia with less than the original loan and a hefty loan repayment to manage herself.

Georgia said: ‘Had I known the lengths and emotional toll it would take to during the divorce proceedings, I would have taken more care to put systems in place when we borrowed the money. Happily married at the time, I never considered that such a simple loan which we all agreed to, could be so difficult to argue during proceedings. The toll on my family was great.’

Lomas continued: “Georgia’s story is not unique, and with the growth in The Bank of Mum & Dad at an all-time high, these numbers are only set to grow.”

“A loan agreement is crucial when lending money to a family member, no matter how big or small the amount”, agrees Sheree Orbell of Orbell Family Lawyers. “Without formal documentation, it becomes difficult to prove in Court that the loan was indeed a ‘loan’ and intended to be paid back. In family law matters, money lent by family is often considered a ‘gift’ and dealt with as a ‘contribution’ by one party, rather than a loan (which is a liability), if there is no written agreement. Unfortunately, we do see many of these cases in our practice. Without documentation, it becomes a difficult case to prove, and can be very emotionally and financially taxing on all parties involved.

“It is hard to argue against a written agreement in court. But it’s important that all parties are clearly identified and sign the agreement, and the terms for all parties are clearly outlined. A little bit of planning and alignment on the terms up front can pay strong dividends in the future.” Orbell concluded.

Chipkie offers legally binding contracts for a small fee, with nearly 20 percent of site visitors opting to purchase loan contracts via the site.

Lomas concluded: “We believe the nominal fee is a small price to pay for peace of mind and is minimal compared to the legal costs associated if the loan doesn’t go according to plan. It’s concerning that the number of family and friends who are using The Bank of Mum and Dad are not generating this very important document.”

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For further information, please contact Michelle Lomas, Chipkie on M: 0422 830 080

Note to Editors
*Not her real name