Gifted Deposits: What Lenders Need When Family Helps You Buy

Gift or loan? Lenders care which

A gift doesn't have to be repaid. A loan does, and repayments reduce what you can afford to borrow. So lenders ask the person giving the money to confirm in writing which it is.

If it's a loan from family, say so. Lenders will include the repayments in your budget, or ask for confirmation that nothing is payable until the house is sold. Calling a loan a gift on a signed declaration is a false statement on a credit application. It also falls apart at the worst moment, such as when a parent needs the money back.

The gift letter

Most lenders have their own form. It usually covers:

• Who is giving the money and their relationship to you.
• The amount.
• A statement that it's an unconditional, non-repayable gift.
• A statement that the giver has no claim on the property.
• Signatures, sometimes witnessed.

Lenders also want to see the money. Expect to show it arriving in your account, and occasionally the giver's statement showing where it came from. That's an anti-money-laundering requirement.

Do you need savings of your own?

It depends on the lender and the size of your deposit. With 20% or more, most lenders don't mind if all of it is gifted. With less than 20%, many want part of the deposit, often 5% of the price, to be 'genuine savings': money you built up yourself over at least three months. KiwiSaver generally counts.

Policies differ, so if your whole deposit is a gift and it's under 20%, lender choice decides the outcome.

Things for parents to think about

• If the relationship ends. A gift to your child may become relationship property shared with their partner. Some parents lend the money under a documented loan for this reason, and that has to be declared to the lender. A family lawyer can explain the options.
• Fairness between children. Some parents record gifts in their wills so things even out later.
• Their own retirement. Money given can't be asked for back. Give only what won't be missed.

New Zealand abolished gift duty in 2011, so there's no tax on the gift itself. Large gifts can still be counted in an asset assessment for a residential care subsidy later in life. That's worth a conversation with a lawyer if the amount is significant.

Timing

Have the money in your account before you apply for pre-approval, or at least have the signed letter ready. A gift promised verbally is hard for a lender to count.

This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.