Many legal minds making NZ LAW work

We are an association of independent legal practices, proactively sharing ideas and expertise for the benefit of our clients.

Helping Hand for First Home Buyers

Published in: Fineprint | Issue 73

Unfortunately for many young people today, not only are the quarter-acre sections fast disappearing into multi-complex developments, but it’s also becoming harder than ever before with an ever-rising property market.

Every time you turn on the news, we hear something about the housing unaffordability in Auckland. Those south of the Bombay Hills start to get a bit glassy-eyed when listening to this on repeat. However, since the government’s introduction of the ‘LVR’ rules in October 2016 aimed at improving affordability in these markets, we must pay attention as all of New Zealand is affected.

The LVR explained

The loan-to-value ratio (LVR) is a measure of how much a lender will lend against a mortgaged property compared with the value of that property. Borrowers with LVRs of more than 80% (that’s less than 20% deposit) are often stretching their financial resources. As well, they are more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates.

The LVR rules permit lenders to make no more than 10% of their residential mortgage lending to high-LVR borrowers who are owner-occupiers.

The effect of this means that in order to buy your first home, you now must have a 20% deposit. In the Auckland and Queenstown markets where the average property price is over $1 million, this is a big savings hurdle for the buyers who want to take their first step onto the property ladder.

Be informed

If you are financially able and willing to open your wallets to help, there are options to support your children who are struggling to meet the LVR requirements. On page 2 we outline some of the more common options available.

Most importantly, the decision to offer a helping hand needs to be informed and time needs to be taken for each party to obtain the appropriate legal advice. Depending on the option/s chosen, there may be significant paperwork to be prepared that records the complexities of the ownership and security arrangements.

This is not something that can be completed overnight. You should get the ownership structure agreed before anybody signs on the dotted line.

Option 1 - 'Gifting some funds'

In this option, your child acquires the property in their own name and a gift of equity of the shortfall of the 20% deposit is made from you to that child. Lenders typically want confirmation that the 20% deposit is the purchaser’s equity and therefore any financial assistance is generally required to be gifted. The gift would need to be documented by way of a deed of gift.

If a gift is made, there’s no ability for parents to later on demand partial or full repayment. This is an important consideration from both a relationship property perspective for your child and also for your own future financial needs.

You must be careful that your generosity towards your child does not get in the way of your own retirement planning.

If you want to protect the gift made for relationship property purposes (if your child is in a relationship), your child should enter into a contracting out agreement to record the gifted amount as their separate property.

Option 2 - 'Loan from parents'

If you can persuade the lender to agree to a loan to your child rather than a gift, then the shortfall of the deposit amount can be lent to your child. The terms of the loan would need to be recorded, generally, in a deed of acknowledgement of debt. This would include naming your child as borrower, interest to be payable (if any), dates for repayment, the ability for the loan to be transferred to a second or subsequent property and, most importantly, the ability to register a mortgage as security for the loan.

Option 3 - 'Guarantee from parents'

Under this option your child would purchase the property outright and any shortfall in the 20% deposit can be guaranteed by you as parents. The guarantee should be limited to the amount of the shortfall. The lender would also generally require that the guarantee is supported by a mortgage over your own property. If you choose this option, it’s important that all parties talk to the lender early on. As well, there would be a requirement for you and your child to each receive independent legal advice.

The benefit of a guarantee is that there is no money required upfront. There is, however, considerably more risk should your child default in their obligation to the lender.

Option 4 - 'Joint purchase of property'

If your child can’t afford to buy their own property, you could buy a share of that property. The title to the property would then have you and your child registered as tenants in common in the shares owned. This option provides some security and potential capital gain return for you as parents. With joint ownership, careful discussion still needs to be held with the lender regarding the required securities.

With this option, it’s essential that a property sharing agreement is entered into between all of the co-owners. This records the terms of the purchase, who will pay for outgoings, repairs and maintenance, management of the property, what happens if your child fails to perform their obligations and, most importantly, an exit strategy for you as parents. Again, you and your child will need independent legal advice.

Option 5 - 'Family trusts'

A family trust could be used in many of the ways explored above, if the terms of the trust deed allow this. Family trust funds could be used to distribute or lend money to a child beneficiary to help them buy a first home. Likewise, the trust could provide a guarantee or be a joint purchaser.

A trust, of which the child is a beneficiary, could also be used as the purchasing entity. Once again, specialised legal advice needs to be sought regarding the trust and structuring of any lending.

If your child is reliant on a government grant for part of their cash contribution, the property must be owned personally for the first six months. No family trust ownership is allowed.

Although trusts have historically been used to provide relationship property protection, this is no longer the case. Trusts can also be open to claims.

Whichever of the five options above you choose, you should also review the terms of your Wills or Memorandum of Wishes for your trust. As well, it’s important to ensure that any assistance, gift, loan or any potential liability under a guarantee or co-ownership arrangement is taken into account when dealing with all your children on an equal basis (if this is what you want to happen). This will help protect against claims by disgruntled siblings if similar assistance has not been provided to them.

It’s every Kiwi’s dream to own their own quarter-acre share of paradise. Unfortunately for many young people today, not only are the quarter-acre sections fast disappearing into multi-complex developments, but it’s also becoming harder than ever before with an ever-rising property market.

Every time you turn on the news, we hear something about the housing unaffordability in Auckland. Those south of the Bombay Hills start to get a bit glassy-eyed when listening to this on repeat. However, since the government’s introduction of the ‘LVR’ rules in October 2016 aimed at improving affordability in these markets, we must pay attention as all of New Zealand is affected.

Related Articles

  • Auckland
  • Bay of Plenty
  • Canterbury
  • Coromandel
  • Gisborne
  • Hawke's Bay
  • Kapiti Coast
  • Manawatu - Wanganui
  • Marlborough
  • Nelson
  • Northland
  • Otago
  • Southland
  • Taranaki
  • Waikato
  • Wairarapa
  • Wellington
  • West Coast

DG Law

David Graham and his secretary started out in a small office in Panmure in 1984.  We now have a large team covering a broad range of the law.

Our vision is to provide a prompt, efficient and effective solution to our clients' legal needs.  Our standard of work is high and clients can be confident they will receive the following when dealing with the DG Law team:

  • Care
  • Courtesy 
  • Prompt Communication 
  • Honesty, and 
  • Trust

Region: Auckland

Phone: 09 574 5316

Kaimai Law Limited

Kaimai Law Bethlehem has been based in Bethlehem, Tauranga for nearly a decade, and our new office at The Lakes opened in March 2017.  The majority of lawyers in our professional team at Kaimai Law Bethlehem & Kaimai Law The Lakes has 10 to 30+ years of experience in their respective fields, which means that they have the knowledge required to give you legal advice you can trust. 

Kaimai Law Bethlehem & Kaimai Law The Lakes specialise in all property matters including conveyancing, finance and subdivisions, as well as family law, commercial law, estate planning, estate administration, trusts, wills, employment law and relationship property. Kaimai Law Bethlehem & The Lakes are your one stop law shops in Tauranga.

Region: Bay of Plenty

Phone: 07 579 3316

Corcoran French

Corcoran French is a firm of Christchurch and North Canterbury lawyers with over 120 years experience in providing legal services to Christchurch and the wider Canterbury region. We have offices in Christchurch City and Kaiapoi. We can also meet you at shared offices at Akaroa.

We welcome new clients and are committed to building strong long-term relationships that are rewarding for our clients.

Region: Canterbury

Phone: 03 379 4660

Purnell Lawyers

There is nothing as inevitable as change. Since opening for business early last century, we at Purnell Lawyers have seen many changes both in name and in the people who have made up the members of our team. We have been privileged to have served the public throughout all of these times. 

We are confident that we will continue to bring top quality legal services to our clients well into the future.

Region: Coromandel

Phone: 07 868 8680

Woodward Chrisp

At Woodward Chrisp we strive to meet the needs of our clients by providing a wide range of high quality legal services within a supportive and collaborative environment.

Woodward Chrisp is the amalgamation of two long established Gisborne legal firms: Woodward Iles & Co and Chrisp and Chrisp. Today’s partners are Ross Revington, Adam Simperingham and Jeff Allen.

Region: Gisborne

Phone: 06 869 0900

Gifford Devine

For all life’s matters, the team at Gifford Devine have your back. Since 1896, our lawyers have been providing straight-talking, practical advice and advocacy to people, families and businesses in Hawke’s Bay.

As your legal champions, we’ll serve you as a trusted adviser, listen to your needs, offer plain English advice, and find a solution to get you the best possible outcome.

We have the expertise to identify potential legal issues, to help you make important decisions, and to realise your goals. We’re your legal champions for all reasons and at all stages of life.

Region: Hawke's Bay

Phone: 06 873 0420

Breaden McCardle Lawyers

Breaden McCardle Lawyers is the largest full service legal practice in the Kapiti Region.

We are here to help you and pride ourselves on providing practical, solutions based advice to clients in an approachable and straightforward manner.

Region: Kapiti Coast

Phone: 04 296 1105

CS Law

Looking after you, your family, and the small print.

Region: Manawatu - Wanganui

Phone: 06 368 9239

Wain & Naysmith

Based in Blenheim, Wain & Naysmith Lawyers is a full service law firm, and a powerhouse for property, family and business law.

We pride ourselves in providing clear and cost effective legal solutions and practical advice for you, your family and your business.

Region: Marlborough

Phone: 03 520 6103

Knapps Lawyers

As a firm, we promise to look after you and treat you in a manner that we would expect to be treated by a professional services provider; we promise to use every available legal remedy available to us to resolve your issue and to do what you ask us to do in a timely manner.

We will hold in strict confidence all information that we acquire through our work for you and which concerns your business or personal information.  The only exceptions are where you authorise us to disclose such information or where we must do so by law.

Region: Nelson

Phone: 03 544 7888

Thomson Wilson

Thomson Wilson is a full service law firm based in Whangarei. We’ve been trusted lawyers for the Northland community and beyond for 75 years.

We act for individuals and families, businesses, public sector and other organisations. Whether you need no-fuss advice on a simple matter, or a team of legal experts. 

Our staff provide advice in most areas of the law, including property law, business law, trusts and estates, separation and divorce, resource management, criminal law and more.

We also offer expertise in specialist areas such as Maori land, local government law, farming and forestry.

Region: Northland

Phone: 09 430 4380

Berry & Co

Berry & Co is a long established, well respected Otago law firm providing a broad range of legal services for our business and personal clients.

We enjoy working closely with our clients, we listen and then we provide practical commonsense legal advice that achieves the outcome that is desired. We have a reputation for obtaining excellent results.

Region: Otago

Phone: 03 433 0007

Cruickshank Pryde

We are proud to provide a full suite of legal services to the regions of Southland and Central Otago. With our offices, located in Invercargill, Gore and Queenstown, equipped with the latest modern technology, we can service wider New Zealand and international clients with ease. Our areas of expertise include commercial, rural, business, employment, family, criminal, property, resource management and estate planning law.

Region: Southland

Phone: 03 214 4069

Welsh McCarthy

Welsh McCarthy practises in Hawera, South Taranaki. Predominant industries in the South Taranaki district are dairy farming, oil and gas. The South Taranaki area also has the largest one-site multi product milk processing facility in the world

We deal with company and commercial transactions, commercial and family law, farm and residential sales and purchases, estate planning and family and charitable trusts. A large part of the firm also deals in the area of family law.

Region: Taranaki

Phone: 06 278 5039

Norris Ward McKinnon

We are the Waikato’s leading provider of specialist legal services with a national and international perspective.

We provide tailored legal advice to meet the diverse needs of large and small corporates, public institutions, small and medium businesses, individuals and families.

We know that choosing a law firm is not an easy task. We work with our clients to listen, reassure, and resolve their problems simply and cost effectively. From our experience, the best way to do this is through developing understanding and long-term relationships with our clients. Our team of lawyers are highly regarded with a depth of experience that gives them the credibility that underpins Norris Ward McKinnon’s solid reputation in the legal market. Put simply, they are real people dealing with the real issues that affect our clients day-to-day.

Region: Waikato

Phone: 07 834 6000

Gawith Burridge

Gawith Burridge traces its history back to 1875 when Charles Gawith first set up his practice. Since then the firm has undergone many changes, including a merger between Gawith & Co and Burridge & Co in 1998 to form our current practice.

Our firm draws on the breadth of expertise available from some of the region’s most senior legal practitioners, as well as the skills of those who have moved here from larger corporate environments.

As a result, we provide clients with a comprehensive range of legal services right here in the Wairarapa. We can provide you with legal assistance whether you are an individual or a company, with everything from setting up a Will to selling your farming business. 

Region: Wairarapa

Phone: 06 370 0000

Greg Kelly Law Ltd

Greg Kelly Law Limited is a boutique Wellington law firm specialising in trust and elder law. Our practice areas are wills, estates and trusts.

We act for private and institutional clients establishing and administering trusts, wills and estates. We also provide quality advice to legal and accounting firms in New Zealand and overseas. In particular, we can assist with legal opinions, obtaining and resealing probate, and estate and trust litigation.

Region: Wellington

Phone: 04 499 5193

Hannan & Seddon

The Law Firm of Hannan & Seddon dates back to September 1867.

The firm's offices were in Werita Street from 1867 until 1982 when the firm moved to Tarapuhi Street and then to its current spacious premises at 61 Guinness Street in 1998.

The name Hannan comes from Mr Michael Hannan whose son John Hannan (Jack) joined the firm in 1908. Jack Hannan remained in partnership until he passed away in 1974 at the age of 90!

The name Seddon comes from Mr T E Y Seddon (son of Premier Richard John Seddon from Kumara) who joined the firm in the 1920's. The other prominent Solicitor at Hannan & Seddon was Cyril McGinley who joined the firm in the late 1920’s and retired as a Consultant in 1997 aged 87.

Currently we have two Partners within our firm. Tony Sullivan who has been with us for 29 years and Colin Smith, 26 years. The firm also has two long serving Legal Executives Elaine Knowles and Beverley Walsh.  

Region: West Coast

Phone: 03 768 4169

All the information published on this website, or in any article herein is true and accurate to the best of the authors' knowledge. Information on this site should not be a substitute for legal advice. No liability is assumed by NZ LAW Limited, or individual NZ LAW member firms for losses suffered by any person or organisation relying directly or indirectly on information published on this site. Views expressed in any article are the views of the authors individually and do not necessarily reflect the view of NZ LAW or their member firms. Information appearing on this site may only be reproduced with prior approval from NZ LAW Limited Head Office, and credit being given to the source. © NZ LAW Limited