With house prices in Auckland skyrocketing and achieving record heights over the last five years, it has lead to parents lending to their children, or parents helping their children into their first house through giving them equity from their own house to help them get a mortgage. The Government has stamped it out but it shows how the changing conditions in the market have led to people adapting and trying to find new ways to help their loved ones out. Here is Jenny our design consulate to talk about it:

We have a product, and this is if you’re going to get all logical with it, its an element of sensible lending, that was passed by the government about two years ago. What it does is actually stop investors, mum and dad investors. So what was happening was, for example, let say that you had an elderly parent that’s property was worth 1.5 million, especially in Auckland. Doesn’t matter where you are because it’s always half of whatever it is, so it doesn’t really matter where you are.                     

So I’m just using Auckland as an example. So mum and dad got a bit older, got to 65, 70. The kids are going we’re broke so mum and dad have said right well I’ve got heaps of equity in our house, I’m going to give you some of the equity to set you up in another house somewhere else. Sometimes they sell up their house and just give them the equity, that stopped. The reason it stopped was a lot of the kids were taking the mick out of their parents. So what happened was, it’s like a guarantor situation, and the parents gifted the equity, the kids went and bought another house and then if they failed to pay or if they had a split marriage, the parents actually had to came back to pay the mortgage. And it’s not just the mortgage that they gifted them, it’s the mortgage that they took in total.

So 200K they might have gifted them to get into the house but the total mortgage was actually 800,000 and at least the parents could then supported their house with their 200,000 mortgages. So sensible lending came in and stopped all that from happening, which is a bit sad for the good ones. But was definitely something that was obviously going awry and then things weren’t being paid and kids got stuff, but it’s mum and dads. And they fall out or whatever happens.