Assisting Children With Buying Property
- by Tammy McLeod
As the property market in Auckland and around the country gets more and more difficult to get into, many parents are looking for ways to help their children get into property. There are a number of ways of doing this and it is important that you take advice as to which option is going to work best for you and your family.
A common way to assist children where they may have great incomes so can service a big loan, but they don’t have the necessary deposit, is to guarantee their borrowings. If you are doing that, it is important to make sure that the guarantee is limited to the amount required rather than a blanket “all obligations” guarantee which can include future borrowings, credit card debt etc. You also need to make sure that the guarantee is released when no longer needed.
Sometimes people want to co-own the property with their child. This is another way of being able to assist where the parents have good equity. It is also an investment for the parents. Tax advice is crucial as well as a carefully crafted property sharing agreement which sets out what is to happen if things go wrong. Often people think that this isn’t necessary (as it a family situation), but in my experience, because it is family, emotions can run higher and therefore it is even more important to make sure that the rules are clear from the start.
A gift to a child is another way of assisting if you can afford it. However, with relationship property issues at the forefront of many parents’ minds, a gift can mean that what you are giving your child you are actually giving to them and their partner. Also, don’t forget that a gift with conditions is not a gift, but a loan. There are no ties to a gift.
Lending a child money to buy a house is probably the most popular way of helping kids get into property. It can be a win win for parents and child if the interest is more than what the parents would receive in the bank, but less than what the child would pay to the bank. You can also put conditions on the loan (e.g. the child can’t make any further borrowings, or has to join KiwiSaver etc). It is important that any loans are documented.
However you chose to assist your child into property, remember to get good legal advice and make sure that all arrangements are properly documented. If you are thinking of assisting your family into property, either now or in the foreseeable future, then make sure that you give our Trusts team a call.