Purchasing a house is the quintessential Kiwi dream, and with good reason.
In most parts of the country, property prices have been rising steadily in recent years, and many New Zealanders view home ownership as a way to financially secure their future. However, due to rising house prices, saving a deposit has become challenging for many.
Like to help your children make that first step on the property ladder? Here are some options to consider.
Depending on your situation, gifting your children a deposit can be one of the most straightforward ways to help them into their first home. The bigger their home deposit, the less they will have to borrow.
How much is reasonable to gift? When choosing the exact amount, make sure you put your own financial health at the forefront. For example, it’s important that your generosity doesn’t compromise your own retirement planning. Plus, if your child is buying with a partner, it’s a good idea to have an agreement in place so that, if the couple separate, half the money gifted for the deposit won’t be lost.
Please get in touch with us to learn more about parental gifts and, of course, get legal advice before signing any papers.
Acting as guarantor can be another way to help your children get a mortgage. Keep in mind that this option is quite complex to set up, so make sure you talk to a lawyer about all the details.
Essentially, if you own your home, you can choose to put a portion of its equity up as security for the house that your children intend to purchase. However, you can’t simply use your home as security; you’ll also need to have the affordability to meet the loan payments your home is securing (if the payments are missed by your children).
Sometimes, a smart way to do this is to use only a portion of your equity and, after a set period, get your child’s house revalued and your security may be removed. As we said, getting legal advice is key.
Co-owning with your children can help them with the deposit and reduce their mortgage repayments. Plus, you could share the capital gains that the property will gather.
Don’t forget to set up a clear agreement detailing how and when you, as a parent, get to take out your money (and hopefully capital gains). The agreement should also state how any disputes will be handled; unfortunately, money arguments can hurt even the closest relationships.
Buying a house is an exciting milestone, and one of the biggest financial commitments your children will ever make. As mortgage advisers, we can help your family understand your lending options and how you can fast-track your property opportunities. Get in touch to find out more.
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 development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
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