New Zealand: Assisting family members with a property purchase

Last Updated: 17 September 2015
Article by Jenny Marren

Banks are restricted by the amount of lending they are able to offer purchasers due to a Loan to Value Ratio (LVR) imposed upon them by the Reserve Bank.

The LVR is the amount of the loan divided by the value of the property and if this is more than 80%, i.e. there is less than a 20% deposit, the banks are stricter with the amount they will lend.

If there is less than a 20% deposit, we suggest talking with a banker before starting the process of looking for a property. In some situations a deposit of 10% is enough, although in our experience those with less than a 20% deposit are often charged extra fees and higher interest rates.

If the bank won't lend, it is better to know this before spending time and money signing up to purchase a property. If finance has been pre-approved, the amount that can be borrowed will be known before starting a house hunt.

More often, we are seeing family members assisting a buyer who is just under a 10% or 20% deposit. We will use the example of a young couple buying their first home. The parents of partner A want to help the couple into the property.

There are different options available to the parents to help their child:

Gifting

The parents could make an outright gift. However, this may have implications for them. For example, if their circumstances changed and they needed to request a return of the funds they would be unable to do so as the funds have been 'gifted'. The parents would be relying on their child to reciprocate the goodwill.

Making a gift may also affect future applications for means tested benefits or rest home care. A gift can be considered a 'deprival of assets' and the Government agency dealing with the application has the discretion to 'claw back' the gift into the applicant's asset pool, meaning that the person would have to pay for their care until their assets were under the qualifying level for Government assistance.

Guarantee

Parents may not have cash to give to their child, but they may have equity in their home or other property which they are comfortable using as security for the couple's borrowing.

We always recommend that any guarantee is limited to the minimum figure possible. In addition, we suggest there is an understanding between the guarantors and borrowers that the guarantee is to be released as soon as the borrower can stand on their own feet, i.e. when the equity in the property reaches 20%, whether it is by way of loan repayments or revaluation.

A guarantor should be aware of the borrower's financial circumstances on an ongoing basis. There is no obligation on the bank to update the guarantor as to the borrower's repayments or debt levels so a guarantor needs to stay informed directly through the borrower.

There is no benefit to a guarantor; they expose themselves to liability for the borrower's benefit, often by way of offering equity in their home as security.

Loan

With the bank's consent, a parent's contribution towards a purchase can be lent to the family member. That loan will rank behind the bank in terms of repayment and security.

Most banks are receptive to a contribution to purchase, which is recorded as a loan, so long as repayment of the family loan cannot be demanded until the sale of the property and after the bank has been repaid in full. These terms ensure the bank knows that the loan can't be called up at any time, which, in so doing, would alter the borrower's LVR.

If a lender wanted to take a registered security interest in the property, a second mortgage over the property could be registered with the bank's consent.

Other considerations may apply to the parents' circumstances and their decision to help their child:

Relationship Property

Parents may be happy to make a gift to a child but don't want to see those funds fall into relationship property realms where by a 'would have been in-law' walks away with half of the gift amount when the relationship breaks down.

A good option from a relationship property perspective is to make a 'repayable upon demand' loan to the couple. That way the loan can be called up if the relationship breaks down and the property is sold (likely after the bank has been repaid as per our comments above).

If a parent did gift to their child, a secondary layer of protection for that gift is if the child enters into a Relationship Property Agreement with their partner to record the gift as their separate property. Meaning that the gift amount would be payable to them in full should the relationship end.

Costs

Often a buyer with less than the required deposit will just want the purchase settled as cheaply as possible. However, due to the involvement of parents there are added transaction costs. Costs will vary depending on the circumstances.

The parties may want to complete a Contracting Out Agreement which defines each partner's separate property and documents how property is to be shared should the relationship end in the future. For this Agreement to be valid, each party needs to obtain independent legal advice which adds cost. It may seem like an expensive process, however, when the relationship ends and there is say a $50,000 family contribution at stake, the money spent to document that contribution as one partner's separate property is likely to be considered money well spent. It may be that those costs are met by the party providing the gift and can be included as part of the gift amount.

Other children

Parents may have the means to assist one child but know that it will set a precedent for their other children which they will struggle to meet. It may be that parents can assist their children in different ways, or that things are equalized as part of the parents' estate planning arrangements and are recorded in their wills.

Careful consideration needs to be given to estate planning in families and this process is better if it is started earlier.

Generally, our advice is for parents to loan funds to a child to get their deposit over the required threshold. That way they are able to call on the funds if they are needed in the future. However, as you will recognise there is no 'one size fits all' solution. If you are thinking of helping family members into a home or providing financial assistance, please contact one of the Wynn Williams private client team members to discuss.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jenny Marren
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions