The Bank of Mum and Dad

Financial support from family when buying a first home can be a game changer, but there are a range of things both parties should consider.

3 minute read

Purchasing a home as a first-time buyer is no easy feat. The average price for property in New Zealand has been growing significantly for years, often at a much faster rate than salary increases. This puts first home buyers in a position of having to save more, for longer, and possibly having to rely on larger loans to finance their purchase.

But there has been one ‘financial institution’ providing consistent support to first home buyers – the Bank of Mum and Dad. The Bank of Mum and Dad can extend across any level of family helping first home buyers step onto the property ladder. And it doesn’t always come in the form of a loan or gift – sometimes this family bank helps out in other ways to give first home buyers the step up they need.

How the Bank of Mum and Dad helps

The most obvious way the Bank of Mum and Dad can help out is through a loan or gift, helping first home buyers build on an already existing deposit.

Another way support can be provided is through low or no rent accommodation, allowing prospective buyers to reduce their expenses and save up faster.

Or using equity to co-borrow with the buyer, through property the family members own, or signing on as a guarantor on part or all of the loan.

Regardless of how the Bank of Mum and Dad contributes to helping first home buyers reach their home ownership goals, there are several considerations that need to be discussed and addressed on both sides.

What to consider as the Bank of Mum and Dad:

1. Start discussing it sooner rather than later: The more time you and your first home buyer have to talk over the options available, the better – waiting until they’re already negotiating with a lender could lead to complications and additional stress. It’s probably also better if you bring it up, rather than waiting for them to ask.
2. Don’t leave things to chance: There’s a lot to consider when providing financial assistance, so make sure you get professional advice so you both avoid potential upsets or future complications. Our home loan experts are more than willing to chat through what to expect and who to talk to.
3. Be clear: When helping your first home buyer reach their goal, it’s best not to be vague. Are you gifting them the money, or is it a loan? If it’s a loan, what repayment schedule works for both of you? Being clear with the details now will prevent misunderstandings down the line.

When accepting money from the Bank of Mum and Dad:

1. Understand your options: It’s important you know what it means to own a home, have a mortgage and the impact of accepting support from your family. If there’s anything you’re unsure about, talk to the family members involved, a professional, or one of our dedicated experts.
2. Make sure you’re prepared: While support from your family will be a big help, you still need to prepare. The bank will carry out its usual checks to see if you’re able to manage and repay the loan, so it’s best to have as much sorted as possible.
3. Be transparent with your ‘lender’: It’s important you keep open and clear communication with the Bank of Mum and Dad. Discuss where you are in the home buying process, show them where you’re looking to buy and openly discuss if and how repayments will be paid. It’s key you both know where you stand, so no additional strain or stress is added, and no one feels like they’re over-committed or under-informed.

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