In New Zealand today, many young people view property ownership as an increasingly distant goal, particularly as home prices remain high and the housing market continues to be competitive. As a result, more parents are stepping in to help their children secure their first homes, offering financial support for deposits or even becoming co-owners. However, such assistance comes with important considerations, especially around tax implications and relationship property issues.

Gifting vs. Lending

While some lucky young buyers may receive a deposit as a gift from their parents, the more common arrangement is for parents to lend the money, either interest-free or with interest. This approach can help ensure fairness between siblings and avoid potential complications down the track. However, when parents offer loans, banks often require these amounts to be included in the child’s statement of financial position as a liability, sometimes resulting in loan applications being declined.

To circumvent this, parents may provide banks with “gift certificates” but also enter into side agreements with the help of solicitors to classify the gift as a loan. This practice, while sometimes tempting, can create ethical and legal issues. The good news is that New Zealand’s major banks generally accept loans from parents, provided the repayment obligations are postponed until the mortgage has been fully repaid. This method avoids the need for misleading documentation and ensures that the loan is legally recognised.

Property Co-Ownership

Another common route for parents helping their children purchase property is co-ownership. In this case, parents buy a share of the home alongside their child. It’s crucial to have a co-ownership agreement in place to outline each party’s responsibilities, including property maintenance, and what happens if either party wants to sell or make significant changes. If the parents’ share is sold or transferred back to the child during the bright-line test period, tax may apply on any capital gain, so careful planning is essential to avoid unexpected tax liabilities.

Including Gifts or Loans in Your Will

Parents often want to treat their children equally when making gifts or loans, and it’s
common for loans to be documented in a will. If the loan is repayable “on demand” and
not expected to be repaid during the parents’ lifetime, it’s important to note that the
loan may be deducted from the child’s inheritance.

If you're considering helping your child purchase their first home, it’s wise to seek legal
advice to ensure the assistance is structured properly. This can help protect both your
financial interests and your relationship with your child.

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The information contained in this article is necessarily of a generalised nature and is correct as at October 2024. Specific advice should be sought in relation to any particular situation.