Bank of Mum and Dad helping 1 in 3 Kiwis into homes

Research by Consumer NZ in 2022 found the Bank of Mum and Dad was the country's fifth-biggest lender, with $22.6 billion in loans doled lout to young home buyers. Photo / 123RF

One in three first home buyers in New Zealand have received financial help from the Bank of Mum and Dad, new research from Kiwibank shows.

It comes as high property prices squeeze many young buyers out of the market.

The Kiwibank-commissioned survey of 2008 nationally representative respondents found 34% of homeowners said they received financial help from family to buy their first home.

This was particularly stark for younger generations, with 65% of Gen Z and 43% of millennials tapping into parental support to get on to the property ladder.

Kiwibank’s home lending general manager Nicole Pervan said it was not unusual to hear of someone receiving a gift from parents towards a deposit or parents having some equity in the home.

“Anecdotally, we see that dialogue more than it probably was a couple of years ago,” Pervan said.

“House prices, the affordability is really driving that.”

Pervan said home ownership is still a critical part of the Kiwi dream, making it an interesting challenge.

“Parents helping their children to get on the property ladder isn’t a new concept, but it’s one way younger people may be able to get on the property ladder sooner,” she said.

According to the survey, 76% agree that at the current rate, future generations will be shut out of home ownership unless their parents can help them financially.

But Pervan says this is not sustainable.

“I think it’s unrealistic to think that parental support is going to be the pathway going forward for people to own their home … and that’s an area of opportunity for us as a bank and where we will look to going forward.”

Nicole Pervan, home lending general manager at Kiwibank.

Research by Consumer NZ in 2022 found the Bank of Mum and Dad was the fifth-biggest lender, doling out $22.6 billion in loans to young home buyers.

The Bank of Mum and Dad trailed ANZ ($71.1b), ASB ($50.7b), Westpac ($44.8b) and BNZ ($39.2b) when it came to owner-occupier loans – but was ahead of Kiwibank ($16.8b).

But providing financial support – which can often be in the tens of thousands of dollars – comes with some important considerations for parents, warns Joanna Pidgeon, director of law firm Pidgeon Judd.

“We’re seeing a lot of people needing to be helped by their parents to get their foot on the property ladder and parents obviously do want to help their kids when they can, but they need to have consideration as to what circumstances might change so that they don’t end up getting burnt themselves,” Pidgeon said.

Pidgeon said the big question is: “Is it a gift or a loan?”

This needs to be clearly understood and legal advice should be sought, she said.

“Often banks prefer it to be a gift because then it makes it clear it is equity for the children who are the borrowers,” Pidgeon said.

“If it is a gift there are lots of things that parents need to take into account.”

One of these is a relationship breakdown between a child and their spouse.

“[Parents] probably don’t want the spouse to get half of that kind of prepaid inheritance as a windfall on the ending of a relationship.

“So there might need to be a relationship property agreement recording that a gift essentially remains the property of the child if the relationship ends.”

Pidgeon said parents’ circumstances can also change, such as divorce, sickness, job loss or business failure.

“People need to be careful that they don’t impoverish themselves. Their position is not set in stone and life events can happen.”

Also important is the consideration of siblings, Pidgeon said.

“Will you be able to deal with them all fairly or equitably depending on their circumstances?”

Kiwibank’s Pervan said there are also ways parents can help their children if they can’t afford to financially.

Its survey found of respondents with children, 39% said they would want to give financial help but probably can’t, while 31% said they want to and can give support.

“[Non-financial help can include] sharing their own financial hacks, providing rent-free accommodation in the family home to help their children to save for a deposit faster, or exploring non-traditional home ownership pathways such as co-ownership,” Pervan said.

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.