It’s a natural instinct for parents to want to help their kids get a head start in life. A common goal for young parents is to save money to pay for kids’ tertiary education costs. However, that’s not necessarily the best way to help. For as long as student loans are interest free, it makes better sense for kids to borrow money to pay for study and to take as long as they are given to repay the debt.

The biggest hurdle faced by kids is not paying off a student loan, it is finding the deposit for a first home and being able to make the mortgage repayments. The Ministry for Business, Innovation and Employment (MBIE) has a Housing Affordability Measure (HAM) which shows that around 80% of renting households are not able to comfortably afford a new home. Getting on the property ladder is vital. By the age of retirement, it is essential to own a debt free home, as NZ Superannuation is simply not enough to live in if there is rent or a mortgage to pay. Given that property prices keep going up, the sooner young people are able to get on the property ladder the better.

So for parents, the best way to help kids financially is to help them buy a house. A cash gift is one way to do this, and the lender will usually insist that it is a gift that cannot be repaid until the house is sold. Otherwise, parents can become guarantors for their children’s mortgages. This might mean putting their own home or other assets up as security for the mortgage, or becoming a co-borrower. The guarantors will need to provide financial information to the lender. It is essential to get legal advice before any arrangement is set up.