The Bank of Mum and Dad: Legal considerations for families helping first home buyers

For many first home buyers, getting into the property market is no longer just about saving harder; it is about getting help. Enter the Bank of Mum and Dad.

Once considered a “nice-to-have”, family support is now, for many, the only realistic pathway to home ownership. But while money from parents can open doors, such arrangements also raise important questions as to the simplicity of the lending and the potential for complications or hidden risks.

Why is the Bank of Mum and Dad so common today?

Put simply, house prices and incomes are out of sync:

• In 2002, the average New Zealand house price was around $186,000 – roughly six times the average income.
• By 2022, average prices had climbed to $890,000 – more than 15 times the average income of $56,000.

Saving a deposit without help is becoming increasingly difficult to achieve.

Parents have stepped in to fill the gap:

• Consumer NZ estimated total parental lending to be $22.6 million.
• The Bank of Mum and Dad ranked as New Zealand’s fifth largest owner-occupier lender.
• An estimated 60-70% of first home buyers receive some sort of family assistance.

At the same time, we are seeing a growing intergenerational transfer of wealth, with much of it tied up in residential property. The effect of this is wealth being passed forward earlier, not just at inheritance.

Gift, loan or guarantee – what is the difference?

Family assistance can take several forms, and each comes with varying legal consequences, particularly where lenders and relationship property laws are involved. Determining this at the outset is the most important decision.

Gift

A gift is often the easiest option from a lending perspective. It contains no expectation of repayment, strengthens the borrowers’ position with the bank and generally only requires a gifting certificate. However, if the funds are used to purchase a shared home, they are at risk of becoming relationship property. In this regard, if a couple separates, the gift has become equity in the home which will be divided equally – meaning half of it will go to the ex-partner. A Relationship Property Agreement can help preserve the gift as separate property, but must be prepared and advised on by a lawyer.

Large gifts can also affect parents’ eligibility for a residential care subsidy if they ever need one. So, it’s important that parents also receive legal advice when helping kids into properties.

Loan

A loan allows parents to retain a legal interest in the funds by creating a repayment obligation. This can be set out on flexible terms and is typically documented in a Deed of Acknowledgement of Debt.

This structure preserves parents’ abilities to recover funds, safeguarding their own financial position, and protects that amount from being captured as relationship property if their child’s relationship ends.

However, banks may treat parental lending as a liability on the part of the borrowers, which has the potential to affect borrowing capacity. In this context, any loans must be disclosed early to avoid lending issues if undocumented loans later arise.

Guarantee

In some circumstances, parents support lending by guaranteeing a bank loan, using their property as security. This is common where parents have equity, but limited cash. However, if the borrower defaults, the bank can pursue the guarantor and, in extreme cases, this can result in a forced sale of the parents’ home. As such, guarantees are less common and should be approached with caution. Proper independent legal advice is essential before proceeding.

Why does documentation matter so much?

Many familial support arrangements are informal. Legally, this is risky because there is a presumption of a gift if money is advanced without documentation. Banks may also question the source of funds. As a result of unclear arrangements, transactions and settlements can be delayed or jeopardised.

From a practical perspective, there are a few ways parents risk losing control of their contribution entirely:

Separation scenario

• Funds are treated as shared relationship property.
• Property is sold and proceeds are divided, in accordance with relationship property rules.
• Parents have no enforceable claim if no loan is recorded.

Guarantee scenario

• Borrowers default on their loan.
• Bank enforces its security against parents.

The first scenario is the most common issue and often comes as an unwelcome surprise. Consumer research further suggests that while many parents do not expect repayment yet, they intend something more than a true gift. This creates a gap between intention and legal reality.

Bank of Mum and Dad considerations

Before advancing funds, it is worth thinking about whether the funds are intended to be:

• A gift?
• A loan?
• Something else?

Other key considerations should be whether the money is repayable (and on what terms), is it secured against a property and is it protected in the event of a relationship breakdown?

The reality is that the Bank of Mum and Dad is now a frequent feature of modern property transactions. First home buyers made up around 26-27% of purchases in 2024-25, with parental support widely recognised as a key driver.

These arrangements work best when they are clearly agreed at the outset, properly documented and aligned with both legal and lending requirements.

Taking advice early is almost always simpler and more cost-effective than resolving issues later. At Wynn Williams, we regularly assist families navigating the property ladder. If you are considering providing support, or receiving it, getting the structure right from the outset can make all the difference.

Anna O’Callaghan, Special Counsel – Wynn Williams Private Client team

Tayla Craigen, Law Clerk – Wynn Williams Private Client team