The ’bank of mum and dad’ is playing a big role helping children get on the property ladder.

Tens of billions of dollars are being loaned by the bank of mum and dad, and it’s now the fifth largest lender in the country, after the big four banks.

Contributions towards deposits are the most common, and according to Consumer NZ, three out of five parents do not expect to be paid back either.

The legal stuff can get complicated though. What if the relationship fails? Without a contracting-out agreement, any gift would form part of the relationship property and therefore be subject to a 50/50 split.

Loan agreements can help put parents in a stronger position. The legal promise of repayment of the loan is there is writing, and interest could be charged too.

Trusts can also come in handy. The trust would be the lender and not mum and dad, making it clear the trust would have to be paid back.

Going guarantor is another common way parents help their kids get on the property ladder. But what many people don’t realise is going guarantor for someone means that you may not just be covering the cost of the initial loan. You might actually be covering all the guaranteed person’s borrowing. So, if you decide to go down this route, it’s really important you get legal advice first.

As a guarantor you don’t necessarily get notified if a borrower defaults either, so you could end up losing your own property and being made to sell it by the bank if things got really bad.

The key takeaway here is that if you’re handing over any money to the kids, it’s either a gift or it’s not. If it’s not, make sure you put some legal steps in place to protect your own interests.

Residential property