Bank of Mum and Dad (BOMAD)
Is the Bank of Mum and Dad set to re-open in New Zealand?
The Bank of Mum and Dad (BOMAD) has long been a source of financial support for young adults, particularly those trying to enter the property market. With rising house prices and stagnant wages, many young people find it difficult to save for a deposit on their own. Historically, many parents have been willing and able to provide cash to help children get a deposit together for the purchase of a first home.
In recent years, however, BOMAD has been closed for business. New Zealand's economic climate , increased cost of living, rising interest rates and general market uncertainty placed significant speed bumps in the pathway to lending from the BOMAD. While a significant rise in property listings in 2024 suggests a cooling market, potentially making homes more affordable, high interest rates continue to strain household finances
So, is it time for the Bank of Mum and Dad to reopen?
There is no easy answer.
The current environment is creating opportunities for buyers of residential property in New Zealand. Higher than average listings and vendor realism, coupled with relaxed bright line and taxation rules is likely to start to add heat to the relatively stagnant property market. Parents who were previously hesitant due to inflated property values, cost of living and higher interest rates might be more willing to help their children with that deposit, particularly given that all indications are that the OCR will start reducing soon.
On the other hand, the high-interest rate environment continues to squeeze household budgets. Even with a potential rate cut on the horizon, it may take time for parents to feel financially secure enough to provide substantial loans to their children.
BOMAD can provide much-needed help to young people who are struggling to get ahead but lending or gifting funds to children can also create financial strain for parents and lead to conflict within families. Ultimately, the decision of whether or not to reopen BOMAD is a personal one. Parents need to carefully consider their own financial situation and their children's needs before making a decision.
Here are some things for parents to consider:
How much can you afford to lend?
What are the terms of the loan?
What are the risks involved?
If you are considering reopening BOMAD, it is important to have an open and honest conversation with your children about your expectations. It is also important to get professional legal and financial advice that is independent to your children so that you have the time and space to make the right decision for you. Independence also ensures that the agreement structure between a parent and child is fair and sustainable.
At Turner Hopkins our property experts are well placed to provide advice to the BOMAD, we can assist the best legal structure to achieve your aims while protect the BOMAD’s interests. If you are considering re-opening the BOMAD then talk to Kate Chivers or Joy Yuan today.