A Helping Hand for First Home Buyers
Options for parents to help
It’s every Kiwi’s dream to own their own quarter-acre share of paradise. Unfortunately for many young people today, not only are the quarter-acre sections fast disappearing into multicomplex developments, but it’s also becoming harder than ever before with an ever-rising property market.
Every time you turn on the news, we hear something about the housing unaffordability in Auckland. Those south of the Bombay Hills start to get a bit glassy-eyed when listening to this on repeat. However, since the government’s introduction of the ‘LVR’ rules in October 2016 aimed at improving affordability in these markets, we must pay attention as all of New Zealand is affected.
The LVR explained
The loan-to-value ratio (LVR) is a measure of how much a lender will lend against a mortgaged property compared with the value of that property. Borrowers with LVRs of more than 80% (that’s less than 20% deposit) are often stretching their financial resources. As well, they are more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates.
The LVR rules permit lenders to make no more than 10% of their residential mortgage lending to high-LVR borrowers who are owner-occupiers.
The effect of this means that in order to buy your first home, you now must have a 20% deposit. In the Auckland and Queenstown markets where the average property price is over $1 million, this is a big savings hurdle for the buyers who want to take their first step onto the property ladder.
If you are financially able and willing to open your wallets to help, there are options to support your children who are struggling to meet the LVR requirements. On page 2 we outline some of the more common options available.
Most importantly, the decision to offer a helping hand needs to be informed and time needs to be taken for each party to obtain the appropriate legal advice. Depending on the option/s chosen, there may be significant paperwork to be prepared that records the complexities of the ownership and security arrangements.
This is not something that can be completed overnight. You should get the ownership structure agreed before anybody signs on the dotted line.