Banks eye ways to make it easier for rich 'boomers' to help their kids buy expensive houses

By Emma Geraghty Banks are increasingly looking for ways  to make it easier for baby-boomer parents to help their children buy expensive houses in the wake of the property boom. The essential problem is that parents and grandparents may have savings locked up in term deposits or in house values, but don't want to simply hand the cash over to their kids, while their kids lack either the deposit or the income to make the big leap into home ownership. BNZ launched its TotalMoney home loan three years ago. It allows savings in up to 10 related accounts to be 'pooled' or 'offset' against a mortgage, which allows the borrower to borrow more and generates an effective return for the savings that is higher than a regular term deposit rate. However, it means the related savers (often parents, grandparents, aunties, uncles etc) are sacrificing their interest payments so that the kids or grandkids can borrow more. BNZ's Chief Operating Officer for Retail, Glenn Patrick, said parents can make a difference to the amount of money their children can borrow and the level of interest they will pay. In some cases BNZ will lend up to 100% of the value of a property depending on the borrowers ability to make the repayments on the debt, the overall level of the debt and the borrower's credit history, Patrick said. Through the scheme, generation "Y" (those aged 20-35), who have not saved enough to buy a house in their own right, can open a joint account with their parents or other relatives. This allows them to borrow more. It also provides an effective tax advantage for the savers, given they do not have to pay withholding tax on the interest 'earnt' on their deposits. BNZ obtained a tax ruling from the IRD before launching the product. The ruling is due to expire at the end of March this year. Monique Cairns, Head of BNZ Retail Sales Development said customer feedback in 2004 highlighted the difficulty for first time buyers trying to "get a foot in the market and save for their required deposit." "Customers can also offset the money in their cheque and savings accounts against their TotalMoney floating home loan, which could drop the effective interest rate and take years off their loan," Cairns said. She said $10,000 in TotalMoney cheque and savings accounts offset against a $150,000 floating home loan can drop the effective interest rate from 5.59%p.a. to 5.22%p.a. See all bank mortgage rates here. How much customers can borrow through TotalMoney depends on the size of the borrowers deposit, with a 20% deposit generally required. BNZ said TotalMoney was a first for New Zealand when it was launched in 2007. It now accounts for a "significant portion" of their variable home loan portfolio. ANZ and National too ANZ and National allow parents to guarantee a child's home loan and to pledge their term deposits to offset the child's deposit. ANZ New Zealand's General Manager Lending Products, Mark Wilkshire said both The National Bank and ANZ offered their first home loan customers the opportunity to have their parents and family members provide a guarantee on their home loan, which is limited to the amount of the normally required deposit. "This allows parents and family to use their assets to help another family member, without having to provide any money up front. Joint borrowing allows a first home buyer to borrow their deposit or the entire purchase price jointly with their parents or other family members. This means the home loan can be assessed on your and your family’s joint financial situation," Wilkshire said. ANZ and National have also had a ‘First Home Buyers Option’ in place for about five years, allowing parents or family members with term deposits to provide a pledge against the term deposit toward the home loan. "This allows the home loan customer to have access to the equity in the term deposit while at the same time allowing the parent or family member to retain the income from their term deposit," he said. "Both these options allow parents and family to help their children or relations reach their goal of home ownership quicker." Parents or family members can apply to have the security released on these options at any time if the LVR gets below 80%. But no others yet KiwiBank Market Manager Peter Lowe said it offered no products similar to BNZ's TotalMoney, but Kiwibank was always researching new innovations. ASB said they currently offer no similar joint 'offset' or 'pooling' accounts between family members.