Family guarantee vs gifted deposit in NZ: how parents can help without risking their home

Examples are illustrative: a $700,000 first home, a 5% deposit and saving $1,500 a month. Lenders differ, and your numbers will too.

Christmas is when a lot of families have the house conversation. The kids have been saving for years and the deposit still feels a long way off. The parents want to help but don’t have spare cash, or they’re worried about what helping could cost them. Both sides usually know less about the options than they think.

Why parents get asked

On a $700,000 home, a 5% deposit is $35,000. Most banks prefer 20%, which is $140,000. That leaves a $105,000 gap. Saving it at $1,500 a month takes about six years, and prices can move a long way in that time.

Low deposit loans do exist, but there are fewer of them, and they often come with a low equity margin or fee. Family help is often what closes the gap. If KiwiSaver is part of your deposit, see the KiwiSaver first home withdrawal rules as well.

A gifted deposit

• Cash moves from the parents to the buyer, ideally into the buyer’s account before they apply.
• The bank will ask for a gift letter (sometimes called a gift certificate), signed by the parents. It confirms the money is a gift, doesn’t have to be repaid, carries no interest, and gives the parents no claim over the property.
• Expect the bank to trace the money: where it came from, and how it got to you. Gifts that move through several accounts, or arrive in a lump just before you apply, now get closer scrutiny.
• A gift can help even if your deposit is under 20%. Lenders will usually accept it as part of a low deposit, as long as you have at least 5% of the price in your own genuine savings (KiwiSaver usually counts). The gift can then top up the rest.
• If you expect the money back, tell the bank. It will count it as a debt, which reduces what you can borrow.
• Many families have a lawyer document the gift, especially when the buyer is purchasing with a partner, so it’s clear what happens if the relationship ends.

Suits: parents who have cash to spare and are comfortable parting with it.

A family guarantee

• The parents don’t hand over any money. Instead, the bank takes a mortgage over the parents’ property as extra security for the buyer’s loan.
• It can usually be limited to the amount needed to bring the loan to 80% of the property value, plus interest and costs (ANZ). In our example that’s about $105,000, not the whole loan.
• Because the bank has 20% worth of security, the buyer can often avoid the low equity margin. Some lenders will lend up to the full purchase price with a limited guarantee in place.
• Some banks offer a variation where the parents take out a separate loan against their own home for the gap, instead of signing a guarantee. Ask which structure suits your family.
• The guarantors get independent legal advice before signing, from a lawyer who isn’t acting for the buyer. Some banks make it compulsory. Others let a guarantor sign a waiver, but taking the advice is the safer route (Kiwibank solicitor instructions).
• If the buyer stops paying and the house sells for less than the loan, the bank can call on the guarantee, up to the cap.

Suits: parents with equity in their home but no spare cash.

Gift vs guarantee at a glance

What the bank looks at for the guarantors

• How much equity they have in their own property
• Whether they could afford the guaranteed amount if it were ever called on. Some banks run an affordability check on guarantors too.
• Whether their own mortgage is with another bank. Ask early, because that bank may need to agree.
• Whether they understand what they’re signing. Lenders watch for guarantors who seem pressured or rushed, which is another reason the legal advice matters.

“The conversation I most want families to have is about the cap,” says Yatin Kainth, Financial Adviser at Mortgage Sense. “A guarantee limited to the gap to 20% is a very different risk to guaranteeing the whole loan.”

How the guarantee comes off

Once the buyer’s loan is at or below 80% of the property’s value, through repayments, value growth or both, the buyer or the guarantor can ask the bank to release the guarantee. Expect the bank to want a current valuation. Plan in years, not months. Some lenders expect it to come off well within 10 years, and making extra repayments shortens the timeline. A limited guarantee on a smaller share of the loan comes off sooner (ASB).

What to do next

1. Work out the gap. The borrowing calculator and how much can I borrow are good starting points.
2. Have the family conversation early. Christmas is fine. The week before an auction isn’t.
3. Talk to an adviser before anyone signs, so the guarantee is sized correctly and the parents understand what they’re agreeing to.

Common questions

Where this comes from

• ANZ, how parents or family could help you buy your first home
• ASB, home deposit guide
• Westpac, buying with family and friends
• Kiwibank, solicitor instructions (guarantor legal advice), October 2024

Read next

This article is general information only and isn’t personalised financial advice. Figures are illustrative and based on the assumptions shown. Guarantors should get independent legal advice. Lender policies change regularly. Mortgage Sense is a trading name of Yatin Kainth, a Financial Adviser (FSP1007497) providing advice under the Mortgage Managers licence (North West Group Holdings Ltd, FSP682791). See the Disclosure Statement.