Lending or gifting a home deposit to your children – What you need to know

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Smith and Partners have been paying close attention to the recent changes to banking regulations. In particular we are concerned about the possible effects of the 20% deposit requirement. This comes into effect on 1 October 2013 but lending criteria have already changed for new loans.

The 20% deposit requirement is placing increased pressure on parents to help out their children – in the form of gifts, loans or by becoming guarantors for the loan.

It is vital that anyone loaning, gifting or becoming a guarantor is a aware of their legal liabilities and the risks involved.

Of particular concern are situations where money is advanced by the parents.  We have become aware that some mortgage brokers are already presenting the parties who are advancing portions of a deposit with “gifting certificates”, which do not necessarily require legal advice to be valid.

Our advice to all clients is that no gifting certificates or any documents purporting to be a gift should be signed without independent legal advice.

While there may be an informal arrangement between the parties that this money is “loaned”, the banks require that it is legally a gift rather than a loan.  If the money is legally gifted, there is no legal basis to require repayment of the loan – even if this is what you verbally agreed to at the time.

Complications and huge regret often arise in the context of future relationship property division or death, when the benefit of these large sums ends up with unintended recipients. There may also be gifting issues in regard to subsequent bankruptcy or business failure and/or qualifying for the residential care subsidy when moving into a rest home.

In every case full consideration of the long term legal effects of interfamily gifting or loans should be discussed with one of our highly experienced team. Contracting Out Agreements (“prenups”), Trusts and other structures can be particularly useful to give clarity and effect to the intentions of all parties in these circumstances.

For advice on how to ensure your interests and intentions are protected when helping out your children, contact Wade Hansen by phone on 09 837 6885 or email wade.hansen@smithpartners.co.nz or Jennifer Edwards by phone on 09 837 6889 or email jennifer.edwards@smithpartners.co.nz to determine the right approach for your situation.