Baby Boomers burden - Assisting our children to purchase their first home
Sometimes the difference between securing a property and missing out for first home buyers is the assistance that their parents can provide in finding the required purchase price.
The risks of gifting home deposit to your children
Parents are sometimes reluctant to make sizable gifts where their children are in relatively new relationships and are purchasing a property together with their partner. The intermingling effect of the purchase using these funds means that after 3 years duration the contribution to the property becomes relationship property and is subject to equal sharing in the event the property is sold.
How to protect property deposit gifts
One way of protecting the gift in these circumstances is for the parties to agree at the outset that the funds are treated as an interest-free loan which is not repayable except upon sale of the property. If the relationship prospers and continues to be a happy one, the parents can gift the loan to the couple. If the opposite happens and the relationship fails then the amount advanced to the couple to assist with the house purchase can be repaid to the parents when the property is sold and the couple has separated.
A standard form of acknowledgment of debt incorporating an agreement to the mortgage is used in these circumstances and is appropriate. The advance cannot be treated as a gift and therefore cannot form part of the purchasers’ personal contribution as required by the bank, however, the bank will recognise that the loan is interest free and only repayable upon the sale of the property, meaning a considerable saving in outgoings for the couple concerned and less risk for the bank advancing the first mortgage.
For further information, please contact our property and finance team who will be happy to document the family funding arrangements.
Guides to the law
Here are links to the New Zealand Law Society law awareness pamphlets.