Recently, we have been having conversations with Mums & Dads who want to help their children get into the property market. We love these conversations. Mums and Dads love their children, understand the good side and the not so good side of their children’s natures and of course want the best for them.
Every family’s situation is unique, as is the type and level of assistance available. That said, here are a few guidelines/options to get you thinking how you might be able to help your children get on the property ladder.
- Reward Diligence – Offer assistance that is reflective of their efforts and contribution.
- Consider ways of building sweat equity in a property using your skills and time to add value to a property.
- A gift is preferable to a loan,
- The bank will deem the gift as part of the deposit and not additional borrowing.
- What if a partner leaves our perfect/darling child? In our view the potential loss of 50% of a gift is nothing compared to the heartache your child and grandchildren will be experiencing.
- Gifts with no strings, lessen in-law relational tensions (hopefully).
- If you do opt for a loan ensure:
- It is well documented and,
- It does not place undue financial pressure on the children.
- You can forgive a loan at some time in the future.
- Don’t borrow money to on-lend to the kids. This is likely to result in your property being used as security and may hinder your ability to borrow for other ventures.
- Try to avoid going Guarantor on the mortgage. If it is unavoidable then limit your exposure.
- Try to avoid offering your property as security (see 4 above).
Things to bear in mind:
In NZ, property historically has been a good investment – but none of us have a 100% accurate crystal ball.
Everyone’s situation is different - tailor a solution that works for you and your family.
Reflect on the benefits you have gained through getting onto the property ladder – It would be great for your children to reap the same benefits.
If you find yourself needing a sounding board to go over the details, give us a call, we'd love to help.
Photo: Tierra Mallorca - Unsplash