Parents are often our first valentine—offering love, support, and guidance throughout our lives. As more young people seek help from the ‘bank of parents’ to secure their first home, the financial impact on their parents is becoming increasingly significant. While this support can ease the burden of homeownership, it’s important to consider the long-term consequences on their retirement savings. It’s crucial to strike a balance between helping the next generation and ensuring financial well-being in retirement.
Buying a first home in New Zealand has become increasingly challenging, with rising interest rates, stricter lending conditions, cost of living, etc.
Many young Kiwis turn to the 'Bank of Mum and Dad' for financial assistance. While this can be a game-changer, it also comes with potential downsides. Here, we explore five advantages and five negative consequences of parents helping their children buy a home, followed by why it's not "doom and gloom" for those who have to do it alone.
Five Advantages of "Bank of Mum & Dad" to Buy Your First Home
Faster Entry into the Market
Parental assistance—whether through a gift, a loan, or acting as guarantors—can help young buyers enter the property market earlier, avoiding years of renting and potentially rising house prices.
Lower Mortgage Costs
With a higher deposit (thanks to parents), buyers can secure a better interest rate, reducing long-term borrowing costs and making homeownership more affordable.
Access to Better Loan Terms
In cases where parents provide a boost to the deposit, it can help young buyers qualify for more favourable loan terms, such as reduced interest rates and lower fees.
Better Financial Stability
A bigger deposit means lower loan repayments, reducing financial stress and making it easier to handle unexpected expenses like home repairs or interest rate rises.
Keeping Wealth in the Family
Helping children buy property can be seen as an intergenerational wealth transfer, ensuring assets stay within the family rather than being spent on rent.
Five Negative Consequences of Parental Help
Parents Risk Their Own Financial Security
Using savings or taking on debt to help children can put parents’ retirement plans at risk, especially if they don’t have a significant financial buffer.
Potential Family Tension
Money can complicate relationships. If parents help one child more than another, or if expectations aren't clearly set, it can lead to resentment and conflicts within the family.
Increased Financial Pressure on Parents
Parents who act as guarantors or co-borrowers may find themselves liable if their child struggles with repayments, putting their own assets (including their home) at risk.
Delayed Financial Independence for Young Buyers
Receiving financial help can sometimes reduce a young buyer’s motivation to build their own financial discipline and resilience, delaying their sense of full independence.
Market Dependency on Family Wealth
Widespread reliance on parental help can reinforce wealth inequality, making homeownership more difficult for those without wealthy parents and widening the generational wealth gap.
Why It’s Not "Doom and Gloom" if You Don't Have "Bank of Mum & Dad".
While receiving parental help has clear advantages, there are also significant benefits to buying a home independently—even if it means waiting longer. Here are ten key advantages:
1. Stronger Financial Discipline
Saving for a deposit on your own forces you to budget, cut unnecessary spending, and develop smart financial habits.
2. Greater Sense of Accomplishment
The satisfaction of buying a home through your own efforts brings a deep sense of achievement and pride.
3. No Family Ties or Obligations
Buying independently means you don’t have to worry about repaying a parental loan or feeling beholden to their financial expectations.
4. More Freedom in Decision-Making
Without parental involvement, you have full control over location, property type, and how you finance your home.
5. Better Understanding of the Property Market
Going through the process solo teaches you valuable lessons about market trends, property research, and mortgage options.
6. Stronger Creditworthiness
Saving for and securing a mortgage on your own strengthens your financial credibility and makes future borrowing easier.
7. More Resilience and Adaptability
Learning to navigate financial challenges independently builds resilience, making you better prepared for future financial hurdles.
8. Better Retirement Planning for Parents
By not relying on parental assistance, you allow your parents to maintain their financial security in retirement.
9. More Financially Responsible Lifestyle
Living within your means, saving diligently, and making smart financial decisions become second nature when you purchase a home on your own.
10. Increased Long-Term Wealth Growth
While it may take longer to buy a property, the skills and discipline gained along the way can set you up for greater financial success in the long run.
Receiving help from parents can provide a leg-up into the property market, but if you don't have that, . At the same time, buying a home independently—while more challenging—fosters financial discipline, resilience, and a profound sense of accomplishment. These attributes can contribute to long-term personal and financial success. While entering the property market without external help may present challenges, the skills and experiences gained through this process can be invaluable, leading to a more secure and prosperous future.
