After a period of prohibitively high property prices, first home buyers are now taking advantage of the slowing property market and taking the leap to property ownership. Some are looking at alternative ways to secure their first home, such as the ‘bank of mum and dad’. Many first-time buyers are given assistance from family to purchase a first home. This can be done in several ways:
Gift Usually the bank’s preferred option, it involves the family member signing a deed of gift stating the funds have been gifted outright. If first home buyers are married or in a de facto relationship, the gift will generally become ‘relationship property’. A relationship property agreement (aka pre-nup) should be considered.
Deed of Acknowledgment of Debt The first home buyer and the lending party (parents) sign a Deed of Acknowledgment of Debt stating the loan is interest-free and repayable either ‘on demand’ or on the sale of the property. Banks are increasingly more agreeable to this option.
Loan agreement with requirement to pay interest This option is generally not favoured by the banks, so a likely barrier to first home buyers getting a loan approval.
Guarantee provided by parents This involves the parents (or other related person) using the equity in their own property as security for the first home buyer’s loan. The guarantor must get independent advice from their own solicitor before signing the guarantee. The guarantee may be unlimited but can be limited to a certain amount on request. A riskier option for parents, so consider carefully.
Co-ownership with friends and family Purchasing a first home with friends, siblings or parents is another solution. All parties have their names on the property’s title as ‘tenants in common’ in equal or unequal shares, with all jointly liable for the mortgage. It’s essential for the parties to enter into a Property Sharing Agreement recording the terms of the co-ownership arrangement.
It’s essential to get legal advice before entering into any of these arrangements.
Claire Endean – Director/Lawyer
dawsonslawyers.co.nz | 09 272 0002
