Young, first-time house buyers are cashing in their inheritances early as tough new lending rules make home ownership harder.

New Reserve Bank rules limiting the number of loans banks can make with less than 20 per cent of a property's value as a deposit came into force on October 1.

Since then, experts say, young people are increasingly turning to the "bank of mum and dad" to raise the deposit.

John Bolton, mortgage adviser at property finance experts Squirrel, has been swamped with new buyers asking parents for help.


"I deal with a lot of professional people in their 30s who find it difficult to ask their parents for financial help," Bolton said. "But more first-time buyers are realising this may be the only real option to get into a house. They would rather have some of their inheritance now."

The most popular tactics parents use to guarantee a mortgage is to offer a large sum of money in a term deposit account as security or using equity in their own house.

"Using a term deposit, the parents still get interest paid on their money and they also have a stake in their kid's property," Bolton explained. "It also means parents don't put their own home on the line, which is something most people are uncomfortable with. We are doing a lot of these deals now."

Bolton also warned of a rise in struggle-street couples turning to independent finance companies for a second mortgage to fund a deposit. He stressed this was not a sensible strategy as interest rates can be more than double offered by high street banks.

Apart from asking for help from family, the Government-backed Welcome Home Loan scheme is another option. But with a price limit of $485,000 for a house and an income cap of $120,000 per couple, it was not a realistic option in the expensive Auckland market, he said.

Campbell Hastie, mortgage adviser at Go2Guys, said he had also been inundated with first-time buyers turning to parents for help.

Experts caution against the elderly taking out reverse mortgages to help offspring. "It is unwise for a retired person to borrow money on their house and give it to someone else," Bolton added. "If it goes wrong, they don't have a regular income to cover the payments and could end up in serious financial trouble."

It was revealed last week that the new loan-to-value rules had a dramatic impact in their first month. Of the $4.47 billion of new mortgage lending in October, 12.8 per cent was at a loan-to-value ratio of more than 80 per cent, down from 25.5 per cent of the $4.7 billion lent the previous month.

And the rules may already be cooling the hot Auckland property market, with just a third of the 150 homes selling under the hammer at a recent auction.

Family summit produces the cash

First-time buyers Jamie Clark and Jenna Close had no hesitation turning to the "bank of mum and dad" to raise a 20 per cent deposit for their house.

The couple, both 25, recently bought a $450,000, three-bedroom house in the West Auckland suburb of Glen Eden.

They had a family summit to discuss ways of raising a big chunk of the $90,000 deposit, and both sets of parents offered to help, says IT worker Jamie.

"Jenna's mum and dad raised the money by using the equity in their house. But my mum and dad originally offered to pay half."

The couple take home about $6000 a month between them. More than half of that goes on mortgage payments.

"We had been renting and it was frustrating because it felt like we were paying someone else's mortgage," Jenna, an early childcare centre manager, says.

"It was more important to get a place of our own rather than come into money at a future date. Without the help we could never have afforded to buy."

Tips to help save for a deposit

• Save a percentage of your income - at least 10 per cent.

• Consider moving to a cheaper rental property.

• Stop buying cafe coffees.

• Make work lunches at home.

• Buy only what you can with cash. Hire purchase interest rates can be 13-37 per cent.

• Do not get locked into contracts for things such as cellphones and the gym. These are often poor value.

• Give up cigarettes. Smoking two packets a week adds up to about $1700 a year.

• Pay off your credit card in full at the end of each month. If you can't pay it off, don't use the card.

- Auckland Central Budgeting Consultants