‘The Bank of Mum and Dad’: Children borrowing from Parents

24 June, 2015 | Jennifer Edwards

So, your parents have agreed to give you and your partner a loan to help you buy your first home – great! But what do you need to be aware of to protect yourselves?

Is it a loan or a gift?

Firstly, is mum and dad’s cash injection going to be a loan or a gift? If it is going to be a loan, then your parents may want to own a share in the property. If you are also borrowing from a bank, the bank may ask for a guarantee from mum and dad over the amount you are borrowing. Your bank will be able to clarify their requirements further.

It is important that a Property Sharing Agreement be prepared to record everyone’s expectations of the ownership of the property. We can help you with this.

Who holds the loan or debt?

Secondly, if mum and dad are gifting the funds to you, then you all need to decide whether the loan or debt is going to be a joint debt between you and your partner, or a gift or debt to their child only. It is important that you discuss what will happen to the debt or loan in the event of a separation or death.

With the right advice and clear documentation, a loan from the ‘Bank of Mum and Dad’ can be a no-fuss way to get into the property market.

If you would like to discuss any matters relating to loans and gifting for property purchase, or any other property law related matter, please contact our property law specialist, Jennifer Edwards on 09 837 6889, or at jennifer.edwards@smithpartners.co.nz

Are you considering using a loan or gift from your parents towards your first home purchase?

We can help ensure everyone’s interests are protected – contact Property Law expert, Jennifer Edwards today to set up an appointment.

email Jennifer
+64 9 837 6889

About the author

Jennifer has been helping Kiwis buy and sell property for over 15 years. As a highly experienced registered legal executive, she assists clients with residential and commercial property transactions including conveyancing, finance, reviewing building contracts for new builds and commercial
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