What you need to know as `The Bank of Mum and Dad’
Are you a parent wanting to help your child buy a house?
If you are, you would not be alone. These days it is becoming increasingly common for parents to help their adult children get a foot on the property ladder. Many New Zealand parents that can are ‘gifting’ their children money towards their deposit or purchase of a property. This is no surprise, as we all know with rising property prices it is becoming extremely hard for young people to buy their own ‘slice of paradise’ without extra financial assistance.
This financial assistance can be an incredible opportunity for the children lucky enough to be supported this way. However, as is always the way with large sums of money involved, intentions and any conditions that may apply need to be made very clear from the start.
With lack of transparency comes miscommunication and confusion which can lead to arguments and in some cases even estrangement. There are also areas that need to be considered by the ` Bank of Mum & Dad’ in order to safeguard their intention of the gift or loan.
Here are some essential things to think about both as a parent lending money to your child, and as a child receiving a monetary gift.
Is this a loan or a gift ?
The bank often requires the parents to sign a Gift Certificate to confirm the money is a gift, but is it actually a gift (as in nothing ever needs to be repaid?). Is it a loan with zero interest to be repaid within a set time? Or is it a percentage of the loan which increases or decreases with changes in property price over time? There are many options but it needs to be made clear from the start what the agreement is. This is where legal advice can help you decide on the best option for your situation.
If you are wanting more information on purchasing a property, click below to check out our Nest Buyers Package
Who is the gift intended for?
If it is a gift, does a partner also purchasing the property, or a new partner who moves in, have an interest in the gift? For example if you gift your child money towards the purchase of a property and a partner moves in, it becomes the family home so it is classified as ‘relationship property’. If there is a separation the partner is entitled to half the value of the house including the ‘gift’ unless there is documentation stating otherwise.
If the intent of the gift was purely for their child and grandchildren, the parents providing the gift need to protect their intentions of their gift.
Seek independent legal advice
Parents should always seek independent legal advice as this is the safest way to protect all parties before any agreements are confirmed or money received.
Jo Shannon is the founder of Nest legal & conveyancing. A Conveyancing Practitioner Jo lives with her family in the beautiful Bay of Plenty. Apart from all things property, Jo also loves perma-culture gardening, walking round the Mount and nice wine.