With the property ladder getting more out of reach for first home buyers, Kiwi’s are forced to get creative with pulling together a deposit. The bank of Mum and Dad has become the 5th largest home loan lender in New Zealand, with an estimated $22.6 billion being loaned out to family members to help them get into a home.
Approximately 70% of all first home buyers that we help get some kind of support from parents, whether it’s in the form of a small cash contribution, to $100,000’s in support. There are 3 ways parents can help:
Parents borrow on their own
This is probably the easiest way for parents to support their family, they go to the bank and ask to borrow the money required. This is then either gifted and loaned to the family member. The parent(s) are liable for only the amount borrowed and not for the mortgage on the home. Nice and easy.
One thing to consider for the parents here is age and career stage. The bank will need to be sure that the parent(s) can repay the money on their own. If they are close to retirement, or already have a significant amount of debt – this can be harder to secure.
This is where 100% of the property value is being borrowed, 80% is secured against the new home and 20% against the parent(s) home. The family member who’s buying the house is assessed on 100% of the property value, which means they need to be able to pay all of the debt back. The parent(s) are only assessed at 20% of the property value. This method is more complex, as both properties will need to be at the same bank, not every bank offers this solution and there will be additional solicitor involvement to get this approved.
This might be in the form of early inheritance, savings, proceeds from share sales etc. This is usually a gift, with no intention of the amount being paid back. When gifting money, the banks will require a gifting certificate, which is a document confirming the money is not a loan, or interest bearing.
Similar to the above but instead of a gift, parent(s) can loan money to their family member. This is slightly more complex and will require a solicitor to draw up a loan agreement between both parties, outlining loan terms like interest and payback period.
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