Bank of Mum and Dad: How to Protect a House Deposit Loan to Your Kids

You're helping your child buy their first home. Maybe it's $30,000 toward the deposit, maybe it's $150,000. Either way, the money leaves your account with a simple, unspoken understanding: this is a loan, not a gift.

Here's the problem — "unspoken" is exactly the word that can cost you the money entirely. If your child's relationship breaks down years later, a contribution with nothing in writing can be treated by a family law court as a gift to the couple, not a debt owed to you. At that point, the money you lent is on the table in a property settlement, and you have no paperwork to claim it back.

This is the "Bank of Mum and Dad" problem, and it's become common enough in Australia's property market that family lawyers now write entire guides about it. Here's how to actually protect the money.

This article is general information, not legal or family law advice. For contributions above roughly $50,000, or if you want maximum protection, speak with a family lawyer about a Binding Financial Agreement in addition to a loan agreement.

Why "They Know It Was a Loan" Isn't Protection

Your child knows it was a loan. You know it was a loan. That's not the problem. The problem is what happens if the relationship ends and their ex-partner's lawyer argues otherwise.

Family law courts look at the substance of what actually happened, not what everyone privately intended. Money that arrived with no documentation, no repayment schedule, and no record of ever being asked for back looks — to a court — indistinguishable from a gift. And a gift to your child, made while they were in a relationship, is very often treated as a contribution that benefited the relationship as a whole, not an asset that belongs to your child alone.

Gift or Loan? The Distinction Matters Twice Over

This isn't just a family law question — it also matters to whoever is approving your child's mortgage.

For the mortgage lender

If the money is a genuine gift, the lender will usually want a signed gift letter confirming there's no expectation of repayment and you won't hold any interest in the property. If it's actually a loan that has to be repaid, it's a liability — the lender needs to know, because it affects your child's borrowing capacity and serviceability assessment.

Signing a gift letter when you actually expect repayment creates a genuine problem: the letter becomes inaccurate, and if that side arrangement ever surfaces, it undermines the lender's assessment of what your child could actually afford.

For family law, later

If the relationship breaks down, the same question gets asked again by a different audience. Was this a gift or a loan? This time, a written loan agreement — signed and dated before or at the time the money changed hands — is your strongest evidence that it was always intended to be repaid.

What a Bank of Mum and Dad Loan Agreement Should Cover

A proper loan agreement for a house deposit contribution needs to be more specific than a casual loan between friends, because the amounts are usually larger and the timeline is often tied to the property itself. Cover:

1. The Loan Amount and Date Provided

The exact amount transferred, the date, and which property it went toward. If you're contributing in stages, record each transfer.

2. Repayment Terms

These loans often don't follow a regular fortnightly-repayment structure like a friend loan does. Common approaches include:

• Repayable on sale of the property, or on refinancing
• Repayable on a set future date, regardless of what happens to the property
• A regular repayment schedule, if that's what actually suits your situation

Pick whichever genuinely matches what you and your child agreed — don't default to "repayable on sale" just because it's common if that's not actually the plan.

3. Interest

Most Bank of Mum and Dad loans are interest-free, and that's completely valid. State it explicitly either way.

4. What Happens on Separation

Spell out, in the agreement itself, that the loan is owed to you specifically and remains repayable regardless of what happens to your child's relationship. This is the single most important clause for the scenario this whole article is about.

5. Security (Optional)

For larger amounts, some parents register a caveat against the property title to formally protect their interest. This is a real legal step with real consequences for your child's future refinancing — talk to a solicitor before doing this, it's beyond what a standalone loan agreement covers.

A Loan Agreement vs. a Binding Financial Agreement

Be honest with yourself about how much protection you actually need, because these are two different tools.

A written loan agreement — the kind you can create in minutes — establishes that the money was a debt, not a gift. This is the essential first step, and for many families, especially at more modest amounts, it's enough.

A Binding Financial Agreement (BFA) is a heavier, more formal legal instrument between your child and their partner, which can explicitly quarantine your contribution so it's returned to your child (or to you) regardless of how the relationship ends. A BFA only becomes legally binding if both your child and their partner get independent legal advice before signing — it's not something either of them can do alone, and it's not something SignedSorted drafts.

For larger contributions, or if you want certainty beyond "we have a signed loan agreement," a BFA arranged through a family lawyer is worth the extra step. For most Bank of Mum and Dad situations, a properly documented loan agreement is the right-sized protection to start with.

What If You Never Actually Ask for It Back?

Plenty of parents lend money with a written agreement in place and genuinely never intend to enforce repayment unless something goes wrong. That's fine — the agreement's job isn't to guarantee you'll collect, it's to make sure the money is legally recognised as a debt if it ever needs to be. Most of the time, it simply sits there quietly doing nothing, which is exactly the point.

Sources: ASIC MoneySmart — Lending to Family and Friends, general guidance summarised from Australian family law commentary on Bank of Mum and Dad arrangements.

Frequently Asked Questions

Is a Bank of Mum and Dad loan agreement legally enforceable?

Yes — a signed loan agreement between family members is a legally enforceable contract in Australia, the same as any other private loan. It doesn't need a lawyer to draft it or a witness to sign it.

Do I need a lawyer for this, or is a loan agreement enough?

A written loan agreement is a genuine, meaningful step up from nothing in writing. Whether you need more (like a Binding Financial Agreement) depends on the amount involved and how much certainty you want — for larger contributions, it's worth a conversation with a family lawyer in addition to, not instead of, a signed loan agreement.

Can I still call it a loan if I never expect to actually be repaid?

Be careful here — if there's genuinely no expectation of repayment, it's a gift, and you should say so honestly (including to any mortgage lender involved). Calling something a loan when you don't mean it can undermine the document's credibility if it's ever tested. Only document it as a loan if that's the real arrangement.

What if my child and their partner both contributed to the deposit?

The loan agreement should be clear about who the money was actually lent to — your child individually, or your child and their partner jointly. This changes who legally owes the debt and is worth thinking through before signing.

Does this affect my child's ability to get the mortgage?

It can. Lenders assess loans (unlike gifts) as a liability against serviceability. Your child's mortgage broker or lender needs an accurate picture of whether the contribution is a gift or a loan before the application goes in — don't leave this to be sorted out after the fact.