There is a lot of talk in the media that the current younger generation will never be able to afford to buy a home. They will simply be a generation of renters. Don’t believe it this for one second. They may not be able to afford your home that you worked for 20 years to get, but there are a number of ways the younger generation can get into their first home without the help of mum & dad. Apart from just the traditional boring savings that you and I had to do there are a number of other initiatives out there. These include:
- Provided the individual has been in Kiwisaver for a minimum of 3 years they access funds from their account.
- The Government has a grant called the Homestart Grant. This grant is for up to $10,000 per person ($20,000 for a couple). Again to qualify you need to have been in KiwiSaver for 3 years. (http://www.hnzc.co.nz/ways-we-can-help-you-to-own-a-home/kiwisaver-homestart-grant-and-savings-withdrawal/).
- Banks will lend up to 90% of the purchase price of a house for first home buyers (only certain Banks offer this).
- In conjunction with point 3 the Government also has a product called a Welcome Home Loan. This is when the Government will underwrite the debt to assist get your child the approval.
However if that is ‘just not enough’ and your child needs further assistance with the deposit there are two other ways to help get them into their first home.
Most Banks have a product designed to let you use the equity in your home to assist your child. The way it works is that your Bank will take a mortgage over both yours and your child’s new home. You are then liable for only the portion of your son or daughters loan over 80% of the purchase price (e.g. if the house costs say $600,000, then the ‘normal’ deposit will be $120,000. If your child has no deposit then you will be liable for just the $120,000 difference). The child repays the $120,000 over 10 years, whereas the rest of the lending is repayable over 30 years. In 10 years your liability has ended and your guarantee will be released.
The second option is when you raise a small loan against your house and lend it to your child. The advantage of this is while your child is still getting set up in life they can pay less, as there is no 10-year limitation. The Banks will simply need to know what your repayment terms are on that small loan. The other advantage is that you may not need to change banks to help get your child that approval.
With regards to the servicing of the loan there are several ways that the income is assessed. Apart from the wages of your child, and that of their partner if that is relevant, the Bank will also accept boarder income. This is a great way of assisting the new homeowner to meet their financial obligations while they are getting set up. Please note that while they may have more, from an assessment point of view most Banks limit the maximum number of boarders to 2 and will also limit the maximum income to $150 per week, per boarder.