Many Kiwi parents increasingly want to help their grown-up children get into the New Zealand property market.
While helping out financially can make a big difference to your children’s future, you should consider how to protect your own finances, so as not to put them at risk.
There are some practical ways to support your children on their home buying journey, from teaching financial skills early on, to setting realistic expectations, to sharing your knowledge and experience.
A Changing World
Back in the 80s and 90s, many young Kiwis after leaving home, worked hard, saved and managed to buy their first home on their own.
Fast forward to today, and things look very different.
High house prices and rising living costs have made it harder to save a big enough deposit. It’s no surprise that so many first home buyers are turning to Mum and Dad for help.
Start with financial education
One of the best gifts you can give your children is to teach them about money from a young age.
Encourage good habits early on, like saving, budgeting and understanding debt, to help set them up for home ownership and financial independence.
Talk openly about money – about what you can and can’t do financially – to help them understand the importance of financial planning. Honest conversations about expectations, boundaries and long-term financial goals are important lessons that children carry into adulthood.
Help set realistic expectations
A big part of supporting your children is helping them understand what their money can buy.
That could mean being flexible about location or starting with a smaller property that isn’t their forever home, but gets them onto the property ladder. The important thing is taking that first step, because once they’re in the market, they’re building equity and moving closer to long-term financial security.
Parents knowledge and experience
Another valuable way you can support your children is by passing on the knowledge you’ve gained through your own home ownership journey.
Whether it’s helping them understand which neighbourhoods offer the best value, what to look out for at an open home, or the ongoing costs they’ll need to budget for – like rates, insurance and maintenance – your guidance can save them from making costly mistakes.
Remind them there are schemes in place to help first home buyers, so it’s worth checking eligibility.
Check your own numbers
As a parent, it’s natural to want to give your kids the same opportunities you had. A place of their own and a kickstart on their financial journey. But even with a solid retirement plan in place, it’s essential to balance your generosity with long-term financial security and a healthy dose of realism.
Before you dip into your own savings or KiwiSaver, make sure your own retirement plans are secure. There’s little point sacrificing your future comfort for the sake of your children’s short-term needs.
Get advice from a Financial Adviser so you understand exactly where you stand and how much financial support you can realistically provide.
Other ways parents can lend a hand
If you’ve checked your own numbers and know you can afford to help financially, there are a few ways you can do this.
- Cash gift for a deposit: A lump sum contribution can help boost your child’s savings and get them across the deposit line faster.
- An interest-free (or low-interest) loan: Lending them money with clear repayment terms can help them buy a home sooner.
- Act as a guarantor: Using the equity in your own home to guarantee part of the loan could help your child borrow more or secure better loan terms.
- Co-sign the mortgage: Taking on shared responsibility for the loan could strengthen your child’s application, but it does come with obligations for you.
- Help with ongoing costs: Covering expenses like legal fees, moving costs, or even contributing towards mortgage repayments can help.
Get financial advice to help you move forward
Helping your children into their first home is a big step, but as mentioned already, it’s important you protect your own finances too. Whichever path you choose to take, make sure the arrangement is clear from the outset and that it works for both your finances and your family relationships.
If you’d like to find out more about financially helping your children buy their own first home, while checking that your own retirement plans stack up, then feel free to reach out to us, so we can help to find the best solution for your situation.
Simply pick up the phone and call 0800 LENDER (536337) or email to [email protected] and we will be delighted to be your Mortgage Adviser of choice.
