Your guide to funding a first-home deposit

For many New Zealanders, buying a first home begins long before the open homes and property searches. The first hurdle is building the deposit, and as property values have risen over the decades, accumulating that initial stake has become a much bigger financial exercise.

That’s put a renewed focus on the so-called “bank of mum and dad”, with parents increasingly part of the conversation about how younger buyers can make their first move onto the property ladder.

But parental assistance is only one pathway. KiwiSaver, lower-deposit lending, co-ownership, help from extended family and a disciplined savings plan can all play a part.

Vega CEO Harry Ferreira says family assistance with home ownership is far from a new phenomenon. What has changed, is the size of the sums involved and the attention those contributions now attract.

“It’s always been common, but I think there’s been much more emphasis on it as the banks have changed how they assess income,” he says.

“In the 70s, 80s and 90s, mums and dads definitely supported kids into homes. But when you had a home that was worth $170,000, the deposit proportionally didn’t feel so big.”

Today, when a 20 percent deposit can run well into six figures, the gap between what aspiring buyers have saved and what they need can feel substantially wider.

Ferreira says parental support is particularly prevalent among first-home buyers and, where it is available, can help buyers enter the market earlier.

“If they don’t utilise mum and dad, couples are often buying their first home in their late 20s or early 30s. But if they can utilise mum and dad, often they’re buying in their early 20s, and that can make a massive difference.”

That difference is not simply about getting the keys sooner. Buying earlier can give owners more time to reduce their mortgage and potentially benefit from longer-term movements in property values, although, as recent years have demonstrated, house prices can move in both directions.

What does the bank of mum and dad actually look like?

Some parents gift money towards a deposit, others lend it, some use equity in their own property to access funds, while another option may involve providing a guarantee to support their child’s borrowing.

Which structure is appropriate depends heavily on the financial position of both generations.

Ferreira says parents who have paid off, or substantially paid down, their own mortgage may have accumulated considerable equity without necessarily holding the equivalent amount in cash.

For example, parents with a valuable mortgage-free property may be able to borrow a separate sum against it to assist with their child’s deposit. Alternatively, a guarantee arrangement may be considered.

But accessing equity is not the same as receiving free money. It can expose parents to additional debt and repayment obligations at precisely the stage of life when many are preparing to reduce their income or retire.

“The main risks are not doing it right and not documenting it properly, and making sure that both parties are very clear,” Ferreira says.

“The risk involved is that the kids don’t make the payments and the parents are stuck with the repayments.”

For parents approaching retirement, that risk deserves particularly careful consideration. A decision made to help a child today should not compromise the parents’ ability to meet their own financial needs tomorrow. Ferreira says clear expectations and professional advice are critical.

“Making sure that it’s well documented and making sure that there are very clear expectations from the lender to the borrower, and from the parents to the kids, with everything documented through a lawyer, is best.”

Put family agreements on paper

Talking about lawyers and contracts can feel overly formal when money is moving between parents and children, but formality can protect the relationship rather than undermine it.

Before money changes hands, families need to establish whether the contribution is a gift or a loan, whether repayments are expected, what happens if circumstances change and whether the parents retain any financial interest in the property.

There’s an added complication when a child is buying with a spouse or partner too.

“Once again, it’s very, very important to make sure that that is all documented upfront, and that’s why legal advice is so important.”

Where buyers contribute unequal amounts, legal agreements can record what each person brought to the purchase and establish how the proceeds may be treated if the property is subsequently sold or the relationship ends.

“If one of the kids is putting in 70 or 80 percent, or all of it, and the partner of that kid is not putting in anything, then that needs to be documented.”

The lesson is straightforward: generous intentions are not a substitute for clear agreements.

When mum and dad aren’t the bank

Of course, plenty of first-home buyers don’t have parents who are able, or willing, to provide a six-figure helping hand.

For those buyers, Ferreira says one of the most important tools is KiwiSaver.

“The higher you can contribute, the earlier the better for you.”

For eligible first-home buyers, KiwiSaver can turn years of regular contributions into a meaningful component of a deposit. Ferreira points to the experience of a young couple in his own family who bought in their early 20s without parental assistance, combining around $77,000 of KiwiSaver savings with money they had accumulated themselves.

He says the example demonstrates why the deposit conversation doesn’t need to start when someone decides they want a house. Building the foundations several years earlier can make the eventual target considerably more manageable.

Extended family can sometimes provide another avenue.

“You could look at aunts and uncles, other family members, not just mum and dad.”

He’s also seen long-standing family friends provide financial assistance.

The same rules apply regardless of who provides the money: understand what everyone is agreeing to, consider the financial consequences and document the arrangement appropriately.

Buying together

Another increasingly relevant option is co-ownership.

Instead of waiting until one person or couple can afford the entire deposit and borrowing requirement themselves, friends or family members may choose to buy together.

Ferreira says he has seen several versions of the model, including three flatmates buying equal thirds of a property, as well as arrangements where ownership shares differ according to each person’s contribution.

“That certainly is an option, and also a growing option,” he says.

While pooling deposits and incomes can increase purchasing power, co-ownership introduces a different set of questions.

Who lives in the property? Who pays for renovations and maintenance? What happens if one owner wants to sell and the others do not? How is any increase or decrease in value divided? And what happens if one person can no longer meet their share of the mortgage?

Ferreira says the legal framework is paramount.

“Making sure that you’ve got the legal side of things nailed is paramount there, and it’s no different to having your parents, the bank of mum and dad, supporting you.”

A co-ownership agreement can establish the rules while everyone is on good terms, rather than leaving those conversations until circumstances change.

The less glamorous option: saving

Financial innovation can create new pathways into property, but for many aspiring buyers the answer will still involve an old-fashioned strategy: spending less than they earn and consistently putting the difference aside.

Ferreira recommends beginning as early as possible, maximising KiwiSaver contributions where appropriate and examining unnecessary spending.

His broader message is not that first-home buyers should eliminate everything enjoyable from their lives. Rather, it is that small financial habits established early can have an outsized effect over time.

“Everything in this world, whether you run a business, whether you’re buying a house, whether you want to have a fit physique, everything is discipline,” he says.

“If you can create great disciplines in the way you manage your finances young, you can retire super early and you can invest.”

For someone who feels years away from buying, that can mean starting with the numbers rather than the property listings.

Work out what you currently have in savings and KiwiSaver, what you can realistically put aside each pay cycle and what purchase price might eventually be achievable. Reducing consumer debt and unnecessary expenses can improve savings while potentially strengthening the overall financial position presented to a lender.

Most importantly, Ferreira says prospective buyers should not allow headlines about housing affordability to convince them that home ownership is automatically beyond reach.

“We watch the media talk about how hard it is for first-home buyers and for young people to get in. What we should be talking to them about is building the disciplines right when they’re young, just having good financial understanding.”

More than one road home

There may no longer be a standard route to a first-home deposit, and that’s not necessarily a bad thing.

For some buyers, the answer will be a contribution from mum and dad. For others, it could be KiwiSaver and several years of aggressive saving. Some may purchase with siblings or friends, while others could receive assistance from extended family or investigate lending options that require a smaller deposit.

Often, it will be a combination.

What matters is understanding the implications of each option before committing to it, and for those who do not have access to the bank of mum and dad, Ferreira’s advice comes back to the fundamentals.

“The earlier you can start with those disciplines, get into KiwiSaver, save as much as you can, be frugal with your money.”

The deposit may be the biggest initial hurdle on the road to home ownership, but there are increasingly different ways to clear it. The key is finding the pathway that works for your finances, your family and the future you are trying to build.