Helping kids into a first home would be nice, but at what cost?

The jury is still out on whether the New Zealand Government’s actions to help first home buyers will help more people into home ownership. In the interim, however, many parents and grandparents are stepping into the breach – but is that a wise move?

Building and Housing Minister Nick Smith recently announced changes to the KiwiSaver HomeStart scheme that include raising the income threshold and house price caps – up to $650,000 for a new home in Auckland – to make it easier for buyers to get into their first home.

The Minister said changes to the Reserve Bank’s loan-to-value ratios from 1 September 2016 also makes it ‘harder for low equity housing investors’, and that this will favour first home buyers.

However, in places like Auckland where the average house value has just hit $1 million, conditions are still tough for young people who want to buy their first property. Auckland investors buying in other parts of the country, among other factors, are contributing to rising house prices throughout New Zealand.

As a result, a number of parents and grandparents have provided, or are considering providing, members of their family with financial assistance towards a first home.

Spicers Financial Adviser in Takapuna, Barry Perrow, says that parents or grandparents who are in a position to gift money towards a home are usually able to do it because they have done their financial planning and they have sufficient resources.

“You may want to gift money to your children, but I always tell my clients to take legal advice first. For example, parents may want to gift a young couple a substantial amount of money towards a home, but other considerations like the couple getting divorced need to be taken into account,” he said.

Options like applying for a reverse mortgage, gifting a deposit, lending the money for a deposit, borrowing jointly or providing guarantees to the bank will most often involve an element of risk.

Gifting a deposit or lending money means you have less money to invest, so you will lose out on investment returns you may need as you get older, while borrowing the money or accepting legal liability – such as a guarantor – could leave you with debt when you least want it.

Ultimately, whichever strategy you choose, there will be a cost to you in some way, shape or form. The question to ask yourself is, can you really afford it?

There are so many variables involved in each personal situation, that it is in your best interests to sit down with an expert adviser.

A Spicers investment adviser will be able to help you understand the implications and the costs, and the impact such a move would have on your retirement lifestyle.

If you’re a parent or grandparent thinking about how you can help family into their first home, the prudence of the move will depend on your own financial situation. The question is not whether you should, or shouldn’t, but whether you can genuinely afford to

Helping kids into a first home would be nice, but at what cost?

The jury is still out on whether the New Zealand Government’s actions to help first home buyers will help more people into home ownership. In the interim, however, many parents and grandparents are stepping into the breach – but is that a wise move?

The jury is still out on whether the New Zealand Government’s actions to help first home buyers will help more people into home ownership. In the interim, however, many parents and grandparents are stepping into the breach – but is that a wise move?

Building and Housing Minister Nick Smith recently announced changes to the KiwiSaver HomeStart scheme that include raising the income threshold and house price caps – up to $650,000 for a new home in Auckland – to make it easier for buyers to get into their first home.

The Minister said changes to the Reserve Bank’s loan-to-value ratios from 1 September 2016 also makes it ‘harder for low equity housing investors’, and that this will favour first home buyers.

However, in places like Auckland where the average house value has just hit $1 million, conditions are still tough for young people who want to buy their first property. Auckland investors buying in other parts of the country, among other factors, are contributing to rising house prices throughout New Zealand.

As a result, a number of parents and grandparents have provided, or are considering providing, members of their family with financial assistance towards a first home.

Spicers Financial Adviser in Takapuna, Barry Perrow, says that parents or grandparents who are in a position to gift money towards a home are usually able to do it because they have done their financial planning and they have sufficient resources.

“You may want to gift money to your children, but I always tell my clients to take legal advice first. For example, parents may want to gift a young couple a substantial amount of money towards a home, but other considerations like the couple getting divorced need to be taken into account,” he said.

Options like applying for a reverse mortgage, gifting a deposit, lending the money for a deposit, borrowing jointly or providing guarantees to the bank will most often involve an element of risk.

Gifting a deposit or lending money means you have less money to invest, so you will lose out on investment returns you may need as you get older, while borrowing the money or accepting legal liability – such as a guarantor – could leave you with debt when you least want it.

Ultimately, whichever strategy you choose, there will be a cost to you in some way, shape or form. The question to ask yourself is, can you really afford it?

There are so many variables involved in each personal situation, that it is in your best interests to sit down with an expert adviser.

A Spicers investment adviser will be able to help you understand the implications and the costs, and the impact such a move would have on your retirement lifestyle.

If you’re a parent or grandparent thinking about how you can help family into their first home, the prudence of the move will depend on your own financial situation. The question is not whether you should, or shouldn’t, but whether you can genuinely afford to

Helping kids into a first home would be nice, but at what cost?
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