By Karen Piercy, AFA.
Parents face a dilemma about helping their children purchase a first home. Issues to consider are affordability, not endangering your retirement nest egg and being equitable to all of your children.
Firstly, ensure your children learn how to manage money and get their finances in shape – pay off short term debt such as credit cards, and show a pattern of saving, before they approach a lender or mortgage broker.
Encourage your children to join KiwiSaver at age 18 to save for a house deposit and get government contributions.
If your child can’t afford a home in their preferred area, they can buy in a cheaper area and live there for 6 months, and then rent in their preferred area, but retain the purchased property as a rental.
You could act as a guarantor to their mortgage using the equity in your home. However, you are putting your home at risk if the mortgage isn’t paid.
Alternatively provide a loan or a gift to your child. Document the arrangement using a solicitor and get advice on how the gift/loan can be protected so it belongs to your child and 50% doesn’t disappear with a partner that goes riding into the sunset.
If you do this for one child, what about the others? Perhaps your Will should be changed to acknowledge that one child has effectively had an early inheritance in the case of a gift.
Don’t feel guilty about not helping in a monetary way. The best gift a parent can give is helping children stand on their own two feet. Your children can get creative about how they achieve their financial goals. They could collaborate with some friends to get into the housing market. Encouraging them to buy property is still the best way to secure their financial future.