The ‘Bank of Mum and Dad’ is one of New Zealand’s largest lenders, with between half and 70% of all first-time buyers estimated to be getting assistance from their parents. Can you afford to help, what kind of help could you provide, and how should you protect yourself?Can you afford to become a bank?
Parents like to help their kids to buy a house because it gives the kids stability and it can set them up for a brighter financial future.
But it’s important that you don’t overstretch your own finances and put yourself into a risky position. You still need enough money to support yourself in a comfortable retirement. It becomes increasingly complicated if your children fail to make their repayments or split from their partners – and if you have more than one child, how will you balance out the needs of each one? You’ll need to consider all those factors before you make a decision.
Lots of ways to help
If you do decide to support your children in their efforts to buy their first home, there are lots of ways to help, including:
- A cash gift to help with the deposit
- A loan to help with the deposit
- Being a guarantor of their repayments
- Co-owning the house with them
- Letting them live with you rent-free while they save up
A gift is the simplest and cleanest – your money might be gone but so are your obligations. The other options all require a bit more negotiation and potential compromise.
The most important factor for the Bank of Mum and Dad is protection. It’s not only for you, but also for your children. Both parties should get independent advice and ensure everything is set out clearly on paper by your lawyers. If ever entering into joint property ownership with a family member, Brightline Test issues need to be very carefully considered before proceeding as there could be significant tax implications.
We can recommend a lawyer if you need one, or can talk to you about the pros and cons of the various options for assistance and which one could be best for you.
Talk to our Cambridge based team today!