Helping Millennials into their first home

Relationships (Family)

There has been much discussion in the media about the difficulty of buying your first home. The government has released the Kiwibuild scheme to both fanfare and criticism. People who qualify enter a ballot for homes, yet to be built. The income level limits for qualification for singles and couples are surprisingly high. Its arguable that there are already homes available in the price range that these houses are to be available for.

Whether you are in the ballot for a new home through the scheme or buying outside, its reported as being increasingly difficult for millennials to be able to save enough to meet the banks deposit requirements.

For some years parents have been stepping in to assist. Sometimes this means going on the title, being co borrowers, guaranteeing loans or advancing funds to assist. All of these carry risks for parents. If you google topics such as “the bank of Mum and Dad” there are numerous articles on the issues, and not just in New Zealand.

Often money is advanced to a couple on an understanding that it will be repaid, either when the couple are able to do so, or if the property is sold, or if the couple separate. No documentation is entered into that shows that intention. Perhaps only one person, the child of the lenders, is involved in discussions.

This becomes an issue on a separation. If there is no contemporaneous documentation and there is disagreement what is the position?

In New Zealand, and in other jurisdictions, there is a concept of “presumption of advancement”. This is a 19th century concept. In simple terms where property is transferred from a parent to a child, it is presumed to be a gift. The presumption has been limited by legislation to some degree in New Zealand with the Property (Relationships) Act 1976 so that there is no presumption of gift between spouses or partners to a relationship, but it still remains as between parent and child.

A Canadian example was where a father purchased a lottery ticket as a gift for his 12-year-old daughter. She was held to be entitled to the proceeds when it turned out to be the winning ticket. 

In New Zealand this presumption is claimed to apply in cases where parents have advanced funds to (usually) the purchase of a property and subsequently attempt to claim it back. It is a rebuttable presumption. Cases, where the advances have been found to be loans, have looked at such things as:

  1. The sum of money involved. The larger the sum the more likely it is to support the argument of a loan, although that will depend on the parents' circumstances.
  2. Whether it is being provided as a stop gap measure, say while another property sells.
  3. Was there any discussion about documentation or security.
  4. Whether there are not any contemporaneous records, say of discussions or actions that support a loan.
  5. In one case what the daughter-in-law thought was the moral situation (repayment) had a bearing.
  6. In another case the cultural practises in the parents’ country of origin, as well as the expectation that they would be moving to live the home too, overrode the presumption that the funds were a gift.

As always leaving things based on trust is not the best idea. Should you be intending on advancing or borrowing money inter-family you need to be discussing what the basis is, and speaking to lawyers.

On 8 August we will be holding an illumination evening where first home buying and issues such as the above will be discussed. For more information on this seminar or to RSVP please contact Rebecca Smith at rebecca.smith@cavell.co.nz.

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