Bank of Mum and Dad: Broker says first-home buyers borrowing $50k to $80K from parents

A growing reliance on parents to help first home buyers onto the property ladder is driving concerns around widening inequality. Photo/ Michael Craig.

The gap between the property haves and have-nots looks set to widen as a growing number of first-home buyers turn to their parents to get help jumping on the property ladder.

Figures from Australia show over 55 per cent of first home buyers received some help from their parents last year - up from just 3.3 per cent in 2010.

There is no across industry data on what percentage of first home buyers need parental help but figures from Mike Pero Mortgages show it is likely to be higher here.

Mark Collins, chief executive at Mike Pero Mortgages, said 60 to 70 per cent of first home buyers had parental help and for those under 30, the proportion jumped to 80 to 90 per cent.

Collin said the difference for those under 30 was probably linked to having less in their KiwiSaver accounts to draw out.

"If you are in your mid 30s to 40s you have probably been earning at higher rate."

Collins said he had been surprised by the figures although he pointed out that it was mainly Auckland where parental support was so high - in the regions it was more like 20 per cent of first home buyers.

"Getting a 20 per cent deposit together in Timaru is not as hard."

He said most parental loans were on a "pay it back when you can" basis which could cause complications if the parent's situation changed and they needed the money back quickly.

"It means there is almost four people in the deal."

Collins urged people to get advice and put a legal agreement in place for the loan.

John Bolton, chief executive at mortgage broker Squirrel, said the number of first-home buyers who were helped by their parents to get on the property ladder was "pretty significant".

"The majority would have some sort of parental support."

Bolton said parents typically helped out either through a cash contribution or through providing a limited guarantee over their home which was more common.

"Often it is not really a gift, it is a loan which is interest-free, which they pay back when they can."

Bolton said the situation had changed dramatically from 10 years ago.

"If I went back to 2008 first-home buyers were able to borrow 100 per cent. You didn't even need a deposit."

Then the global financial crisis hit and lending was tightened up and most buyers now need a 20 per cent deposit.

Karen Tatterson, an Auckland mortgage broker with Loan Market, said the number of first-home buyers using parental help had doubled in the last 10 years and rising property prices was the driving factor.

Tatterson who has already planned to help her own son get on the property ladder, said it was a common thread of discussion among her and her friends - how they were going to be able to help their children out.

But it was a challenge made tougher for those with more than one child.

Tatterson said typically parents who helped out used the equity in their property to boost the deposit over the 80 per cent threshold so the children did not have to pay a low equity fee.

In Australia, the average value of the help provider by parents was A$80k, and Tatterson said here it was around $50k to $80k in New Zealand.

But the situation has fueled concerns that only property-owning families will be able to help their offspring locking renters and their children out.

Economist Shamubeel Eaqub said the divide between the property haves and have-not had been happening for a while.

He pointed to the last census in 2013 which showed just over half of adults were renting and home ownership levels were falling across all age-groups.

"This divide is going to multiply. Only those people with parents with property are able to access it because they are trading in the same pool."

Eaqub said 30 to 40 years ago people didn't need help from their parents because they could save a deposit from their own income.

But that is no longer so easy.

Last week, the Real Estate Institute revealed it takes Aucklanders on an average weekly income 16 years of hard slog to save for a house.

Eaqub said homeownership rates had peaked in the early 90s and the children of those who had struggled to get on the property ladder were now coming through.

"The consequence of that is going to be more apparent."

But he said there was no quick fix for this kind of generational shift.

"I'm not confident we can turn around homeownership rates anytime soon."

He said it had taken around 30 years of pro-homeownership policy to build up rates in New Zealand and he was not convinced the political environment was open to the kind of policies needed to change it significantly.

Diane Maxwell, Retirement Commissioner, said it was seeing more and more older New Zealanders trying to help their adult children into a home.

"It can be a good thing but it does depend on the finances of parents and how much strain it puts on their own situation.

"We've seen situations where people have sold their family home and moved out of the city to free up money for kids. That may lead to greater isolation as they move away from their community and friends.

Maxwell said there was also a risk that parents would loan or give money to their children that they would need later in life.

"We have worked on a case where a retiree lost his entire life savings sending money to an inheritance scam – his key motivation was that with the inheritance windfall he would be able to buy houses for his children."

Maxwell said it was not a good thing if the financial situation and home ownership status of the parents had a greater impact on the child than their own prospects in life.