First home buyers: structuring parental support

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It seems property prices are perpetually on the rise, and first home buyers are increasingly being priced out of the market. In light of this, more and more parents are stepping in to assist their children into their first home.

However, it’s important all purchasers are fully informed before taking the step on to  the property ladder together, and that parents have sufficient protection in place should something go wrong.

There are a variety of ways parents and children can acquire property together, and there are risks and benefits to each structure.

Some common property structures

  • Child acquires property in their own name with assistance from parents, or parents’ or grandparents’ Trust
  • Child and their friend (non-romantic) acquire a property as tenants-in-common with assistance from either one or both sets of parents or their respective Trusts
  • Child acquires property with their partner either jointly or as tenants-in-common with assistance from either one or both sets of parents (or their Trust or Trusts)
  • Child acquires property either on their own or with a friend, or partner with one or both sets of parents providing a guarantee to the bank
  • Child (with or without their partner) acquires a property in co-ownership with parents (or their Trust) with the respective shares held as tenants in common, or
  • Family Trust acquires a property on behalf of a child.

What structure is best?

What structure you decide on will depend on your circumstances. Some of the factors you’ll need to consider are:

  • How much of a deposit has been saved?
  • Have bank equity requirements been met?
  • Will KiwiSaver contributions and/or HomeStart Grants be accessible?
  • Are interest payments serviceable?
  • Will tenants be required?
  • Does the property require further work?
  • Is this a good investment?
  • How long do you intend owing the property?
  • Will a contracting out agreement be needed?
  • Will a property sharing agreement be needed?
  • What will happen if a relationship breaks down?
  • Is it a gift or loan? What happens if the loan is called upon?
  • Is a guarantee required and if so, is it limited or unlimited?
  • What is your tax residency?
  • Who is to benefit on your death?
  • Are you able to provide this assistance to all of your children?

These questions are best discussed with a professional adviser to ensure you implement the most effective structure for you and your child. When you’re in the heat of making offers, timeframes are tight and emotions can run high. If your child is beginning to house-hunt and you are considering helping them financially to secure their property, we suggest talking to one of our team early on to understand what structure will best for you.

This article was first published in June 2017 and revised in August 2019.

Our thanks to Vanessa Crosby for writing this article