Will the Bank of Mum and Dad Still Be a Viable Option in 2025? Understanding Family Loans in Today’s Economy

As we look ahead to 2025, many New Zealanders are questioning the future of homeownership, especially for younger generations struggling to break into the property market. For many first-time buyers, parental financial support—whether through a gift, loan, or guarantee—has been the only way to make homeownership a reality. But as the economic landscape continues to evolve, it’s important to ask if the Bank of Mum and Dad will still be a viable option in 2025, or is it time to rethink this financial assistance model?

The Changing Role of Family Financial Support

Over the years, buying a home in New Zealand has become a difficult goal for younger generations. Recent data shows that saving enough for a deposit is a struggle for first-home buyers as household incomes are squeezed by rising living costs, despite a cooling in the housing market. In this context, the Bank of Mum and Dad provides a much-needed boost. Whether helping with a deposit, offering a loan for the full amount, or acting as a guarantor for the mortgage, parents have been stepping in to fill the financial gap. 

The Pros of Family Loans in 2025

The Bank of Mum and Dad has always provided a unique advantage for younger buyers, and will likely continue to be the case in 2025. Here are a few key benefits:

1. Speeding Up Homeownership: As house prices remain high, the ability to buy a home quickly is increasingly crucial. A loan or financial gift from parents can help younger buyers secure a home before further price rises, avoiding years of renting or missing out altogether.
2. Potential for Building Long-Term Wealth: When parents help their children purchase property, they’re not just supporting their immediate housing needs, they’re investing in their future. Family loans enable younger buyers to build equity faster, instead of seeing money spent on rent each month.
3. More Flexible Terms: Family loans have more lenient conditions than traditional bank loans. Parents can offer lower interest rates, more forgiving repayment schedules, or even interest-free loans, helping children manage their finances without the burden of typical mortgage costs.
4. Creating a Legacy: Financial support for children can be seen as an investment in future generations, allowing them to establish financial stability that can be passed on. Family loans, when structured well, help preserve wealth across multiple generations.

The Risks of Family Loans in 2025

However, helping children with homeownership through family loans comes with risks that must be carefully considered:

1. Financial Strain on Parents: Many parents nearing retirement may have difficulty affording such loans, especially as living costs rise. They could risk their retirement plans to help their children if they’re not financially secure.
2. Potential for Family Tension: Money has the potential to complicate family dynamics. Expectations around repayment, disagreements about terms, or miscommunications can lead to strained relationships. What starts as an act of love and support can create lasting tension within the family.
3. Legal Challenges: Family loans can easily lead to misunderstandings, particularly without formally outlined terms. You must have a written agreement in place to avoid costly and damaging mistakes. 

The Importance of Legal and Financial Advice

It’s crucial to approach family loans cautiously in light of these risks. Here’s what you need to consider:

1. Formal Loan Agreements: It’s vital to create a legally binding agreement that outlines the loan amount, repayment schedule, and interest rates, if applicable. This ensures that both parties are clear on expectations, reducing the risk of future misunderstandings.
2. Tax Implications: If the loan is not treated as a gift, there may be tax consequences to consider. Parents should be aware of gift taxes or potential implications if the loan is forgiven or offered at below-market rates.
3. Open Communication: To prevent family conflict, it's essential to have a frank discussion about expectations, the terms of the loan, and the potential impact on the family’s financial situation.
4. Professional Guidance: Consulting with a lawyer or financial adviser can help ensure the loan agreement is properly structured and all legal and financial implications are considered.

Looking Ahead: Is the Bank of Mum and Dad Still a Viable Option?

While the Bank of Mum and Dad will likely remain an essential financial tool for many young Kiwis, the benefits must be weighed against the risks. With falling interest rates and the OCR working in favour of buyers, this might be a prime opportunity for families to step in and offer support. However, with rising living costs and increased financial pressure, parents must carefully consider their ability to assist without compromising their financial future.

If you're considering helping your children purchase a home in 2025, it's important to approach the decision with clarity and professional advice. By understanding the potential rewards and risks, you can help your children achieve their homeownership goals without jeopardising your long-term financial security.

Get Expert Advice from Eureka Financial

Navigating family loans in the current economic environment can be complex, but with the right support, you can make informed decisions that benefit you and your children. At Eureka Financial Services, we specialise in helping families structure loans and gifts in a way that works for everyone.

Contact us today for personalised advice on navigating family loans in 2025 and beyond, ensuring your financial support is effective and secure. Let us guide you through the process to create a strong foundation for future generations.