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Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

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Do parents need to help children into their first home?

Written by Vanessa Williams on February 27th, 2017.      0 comments

There is a lot of talk in the media that the younger generation will never be able to afford to buy a home.

Don’t believe it this for one second!

key handover-676They may not be able to afford your home that you worked for 20 years to get, but there are a number of ways the younger generation can get into their first home without the help of mum and dad.

Apart from just the traditional boring savings that you and I had to do there are a number of other initiatives out there. These include:

  1. Provided the children have been in Kiwisaver for a minimum of three years they access funds from the account.
  2. The Government has a grant called the Homestart Grant. This grant is for up to $10,000 per person ($20,000 for a couple). Again, to qualify you need to have been in Kiwisaver for three years. Read more at http://www.hnzc.co.nz/ways-we-can-help-you-to-own-a-home/kiwisaver-homestart-grant-and-savings-withdrawal/.
  3. Banks will lend up to 90% of the purchase price of a house for first home buyers (only certain banks offer this).
  4. In conjunction with Point 3 above, the Government also has a product called a Welcome Home Loan. This is when the Government will underwrite the debt to assist get your child the approval.

However if that is ‘just not enough’ and your child needs assistance there are two other ways to help get them into their first home. 

Most banks have a product designed to let you use the equity in your home to assist your child.

The way it works is that your bank will take a mortgage over both yours and your child's new home. You are then liable for only the portion of the child's loan over 80% of the purchase price (e.g. if the house costs say $600,000, then the ‘normal’ deposit will be $120,000. If you child has no deposit then you will be liable for just the $120,000 difference). The child repays the $120,000 over 10 years, whereas the rest of the lending is repayable over 30 years. In 10 years your liability has ended and your guarantee will be released.  

The second option is when you raise a small loan against your house and lend it to your child.

The advantage of this is while your child is still getting set up in life they can pay less, as there is no 10-year limitation. The banks will simply need to know what your repayment terms are on that small loan. The other advantage is that you may not need to change banks to help get your child that approval.

With regards to the servicing of the loan there are several ways that the income is assessed. Apart from the wages of your child, and that of their partner if that is relevant, the bank will also accept boarder income. This is a great way of assisting the new home owner to meet their financial obligations while they are getting set up. Please note that while they may have more, from an assessment point of view most banks limit the maximum number of boarders to two and will also limit the maximum income to $150 per week, per boarder.

Houses prices over the last few years have certainly jumped up and the purchase price may look unachievable, however a couple who earn, say, $60,000 each and have one boarder can borrow up to $750,000 (conditions apply). With some brand new houses starting at $650,000 your son or daughter certainly can be a home owner in Auckland.

If you have a child looking to get into their first home please contact any of the staff at Personalised Mortgages Ltd who will be happy to assist. They can be contacted on 09 838 9994 or at www.personalisedmortgages.co.nz.
 

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