Buying a home is an important goal for many New Zealanders, and parents often want to help their adult children get there. That support can take several forms, from a gift or family loan to acting as a guarantor or co-borrower. Here are some of the key things to consider with each option.

Gifts, family loans, guarantees and co-borrowing

The “bank of mum and dad” is a major force in New Zealand’s property market. In 2022, Consumer NZ estimated that parents had provided $22.6 billion in financial support to their children. Its research found that 14 percent of families had supported their children financially to buy a property, with an average contribution of $108,000.

Such support can be given in a number of ways.

Gifts: Sometimes, parents offer a straightforward gift of money towards a deposit, with no strings attached. This is usually the simplest way from a lender’s point-of-view, because there are no repayments to factor into the borrower’s future budget.

Family loan: Other times, it could be a family loan with some conditions, such as the potential for the family to ask for it to be repaid or to add interest. A mortgage lender may want to know what the terms of the loan are, to determine how that will work alongside a larger home loan.

Guarantors: Some parents choose to act as a guarantor for a loan, offering their own property as security against the new borrowing if their children do not have sufficient deposit or equity themselves. This can help first-time borrowers get to the 20 percent equity threshold at which they can often access interest rate specials. Lenders will also need to assess whether the parents are in a position to meet their obligations under the guarantee if the borrowers are unable to make their repayments.

Co-borrowers: In some situations, parents and their adult children take out a loan together and make a joint application for a home loan. All applicants then contribute toward the deposit and are jointly liable for the borrowed amount.

Understand the implications

While there are several ways to help an adult child buy a home, it’s worth taking the time to understand the potential consequences of each option. Parents who act as guarantors or co-borrowers, for example, may find that it affects their own borrowing capacity in the future. It’s also important for everyone involved to be clear about their obligations and the risks that may arise if things don’t go according to plan.

For some families, relationship property is another important consideration. If there are concerns about how money provided to an adult child could be treated in the event of a future separation, legal advice may help identify an appropriate structure.

Lenders will want information

When parents are helping their children into a home, the lender will need some information about what support is being offered, and on what terms. If the deposit assistance is a loan, the lender will want to know the details of it, including what repayments are required and what interest rate might be being charged.

Parents who are willing to act as guarantors will be assessed for their creditworthiness and income, to satisfy the lender that if the borrowers were to stop making repayments, the guarantors would be in a position to take over. In a co-borrowing situation, the lender will also assess the parents as borrowers, including their income, expenses, existing debts and ability to service the lending.

Independent advice matters

It’s usually a sensible idea for all the parties involved in a potential transaction to seek their own independent legal or financial advice. This means parents can be satisfied that they have chosen a way to help that is appropriate for their own situation and future plans as well as suitable for their children’s needs.

We’re here to help

Your SHARE mortgage adviser can help you to consider what your options might be, whether you’re a parent wanting to help a young person into the property market, or a first-home buyer wondering what might be possible. Give our team a call and we can help you get on the right track.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.