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I'd like to help my child purchase their first home. How should I protect that investment?

Helping your child purchase their first home - protecting the investment.

Some of Turner Hopkins' team recently joined economic analyst and commentator Tony Alexander for an update on the New Zealand economy. The property cycle, Credit Contracts and Consumer Finance Act 2003 rules (CCCFA), and "the bank of mum and dad" were hot topics. According to Consumer NZ, approximately 61 per cent of parents have helped contribute to an adult child's house deposit – making the bank of mum and dad the fifth biggest lender in New Zealand.

These are big numbers, and the deposit amounts provided to first home buyers from the bank of mum and dad can be eyewatering. In our experience, this lending can be a risky venture when only informal arrangements are in place. Issues can arise if it is not clear whether the money is a loan or a gift. There may be further complications if the child receiving the loan is in or becomes involved in a relationship that is captured by the Property (Relationships) Act 1976.

In Zhang v Li [2017], a husband claimed that $335,500 advanced by his wife's parents to his wife to purchase the family home was a gift. The wife's parents ultimately won in the High Court, and the funds were deemed to be a loan. However, in hindsight, the cost of court proceedings alone was an avoidable and expensive exercise.

Another common issue occurs if the bank of mum and dad lends to one child but makes no provisions or allowance for other siblings. These interfamilial disputes can happen at any time but particularly come to the fore following the parents' death and subsequent reading of the wills, where there is a perceived bias toward a "favourite" child. In fact, a USA-based Wealth Check-Up study confirmed the top three fights between siblings concerning parents' money are (1) when an inheritance is divided, (2) whether one sibling had supported their parents more than the other/s, and (3) whether the parents had been fair in their financial support of their children.

Joint-lending and purchasing with your children is another way that the bank of mum and dad often assists their children into property. Leveraging equity in your own home or acting as a guarantor can have severe personal consequences if the child in question defaults on repayments.  

At Turner Hopkins, we have the specialists and the experience to help you make prudent decisions if you wish to become part of New Zealand's fifth biggest lending organisation. We can guide you through the options, and draft the appropriate agreements and documents to ensure your investment in your child's future is as safe as the house you are putting them in.

Remember, the team at Turner Hopkins is here to help. If you have any questions or concerns about the topics raised in this blog, please contact the team below. 

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