Getting into your first home in New Zealand has never been easy – and in 2025, it’s still one of the toughest milestones to achieve.
Over the past few decades, house prices have soared. The New Zealand median value according to Cotality’s latest Home Value Index is $810,141. Median values in Auckland alone are $1,053,397. Meanwhile, everyday living costs continue to rise. This combination makes saving for a deposit harder than ever. And with banks tightening lending criteria for borrowers with less than a 20% deposit, many first home buyers are finding themselves locked out.
It’s no surprise that young adults are struggling to set themselves and their families up for the future, and more and more Kiwi parents are stepping in to help.
The good news? Parental help works, and most banks are open to accepting gifts, guarantors, borrowing against equity and family loans as part of young Kiwi’s mortgage applications. With that said, there are some key differences to understand between each option before deciding how to help.
Option One: The Gift
This is the simplest and most favoured option that banks prefer to see in home loan applications. A gift consists of parents giving their child a lump sum of money towards a house deposit with no strings attached. There are no expectations of repayment, no claims to the asset purchased and no liability on the parents’ part should mortgage repayments fail.
Often a condition of a gift as a part of a loan application is a certificate or a letter outlining the terms and conditions of the gift. This reassures the bank that no repayments are required (which means it won’t affect the borrower’s servicing ability) and clearly documents that the contribution is a genuine gift.
On the odd occasion, banks might also request verification of a deposit being made into the loan borrower’s bank account as a condition of approval. However for the most part, a letter of agreement submitted in the pre-approval stages is sufficient.
Option Two: The Deed of Acknowledgement of Debt
This is a good alternative to offering an out and out gift if parents would like to be repaid eventually but are satisfied to lend a sum of money towards a house deposit in the meantime. In this instance, funds are given between parties, a contract is drawn up outlining terms of repayment and similarly to the ‘Gift’ option, the lending party (the parents) aren’t responsible as a guarantor for the repayments of the home loan.
A common clause that we see in this structure, is for parents to accept repayment upon the sale of the house. Banks find this favourable as there are no regular repayments required from the borrower (the child) and in most cases, if the borrower holds the property for a number of years their equity will build and the original loan can be repaid in capital gains.
For many this method is preferable to a gift. When a property is sold the bank gets paid first, then the deed of acknowledgement of debt is to be settled. If the sale takes place further to a couple splitting then whichever parent advanced the funds will get them back rather than having them swallowed up in a matrimonial settlement.
Interestingly, this form of loan is not technically considered ‘debt’ in the eyes of the banks, as the borrower is not contractually obligated to repay with any frequency.
Option Three: The Loan from Mum & Dad
This option is less common these days – and for good reason. Parents lend money to their children (rather than gifting it), on the condition that they make repayments at a rate and frequency specified.
The amount is treated as debt in the bank’s assessment and even if the loan from parents is interest free, banks will still factor in regular repayments when calculating affordability. This means it is added to the child’s total liabilities, can reduce how much they’re able to borrow overall and make it harder to get approval.
If you do go down this path it’s essential to protect both parties and have a formal loan agreement outlining the amount, repayment terms, and any interest.
Other options like gifting or using equity are more straightforward and favourable in the eyes of lenders.
Option Four: Borrowing Against Equity
Borrowing against the equity a parent has built over time in property is a good option for borrowers who are strong in affordability (have a high income with low expenses) but have a smaller deposit saved.
For many parents, they’re unable to lend their children a lump sum of money as their funds are tied up in their investments. This option allows them to give their children a ‘leg up’ by borrowing against the equity they have built in their property, without having to withdraw any cash.
For example, if a child needs to borrow a $600,000 loan but can only borrow $500,000 against their own property due to LVR restrictions, the parents could secure the additional $100,000 against their own property.
In this scenario, the parents become jointly liable for the $100,000 portion of the debt as it is secured against their asset, and not the full amount. Both the parents and the child will need to meet bank servicing criteria. This can often fall through when the parents are “asset rich” but unfortunately do not have the ability to meet the servicing/income criteria required to unlock the equity.
Option Five: Co-Ownership
Co-Ownership can be a smart way to make home ownership possible – by pooling resources, parents and children can increase their buying power, allowing them to purchase a better quality property or one in a more desirable location. It can also give parents a stronger return on the money they’re contributing, rather than gifting or lending it.
Co-Ownership arrangements can quickly become complicated if expectations aren’t clearly set from the beginning. We recommend:
- A clear, written agreement is in place outlining each party’s share, contributions, and responsibilities.
- Each party seeks independent legal and tax advice to understand the implications.
- The arrangement should consider what happens if one party wants to sell, refinance, or exit down the track.
When Things Get Messy
The key thing to note is that banks are cautious about entering any deal with multiple parties – especially when agreements aren’t clearly defined.
For example, if parents want to have an interest noted on the property title in exchange for their contribution to property. Issues could arise if the property is ever sold or goes to mortgagee sale.
For this reason, banks prefer agreements, whether it’s a gift, loan, borrowing against equity or otherwise, to be made separate from property titles. We’d always recommend getting your agreement put in writing, and being as clear as possible about entitlements, repayments, expectations and even circumstantial sales before accepting family support.
For most situations, it is best to consult a solicitor as part of the decision making process.
Want advice on how best to help out your kids?
There is no one-size-fits-all approach. If you’re considering helping your kids get into their first home, get in touch with your local adviser. We’ll help you explore your options, understand the risks, and find a solution that works best for your family.
