The secret to your kids owning their first home could be found in yours. Photo / Getty Images
Planning early can preserve independence and reduce long-term costs.
We spend a lot of time talking about young people struggling to get on to the property ladder. We spend far less time talking about the housing problem facing their parents.
The younger generation’s challenge is obvious. House prices are high, deposits are daunting and the goalposts often move faster than savings grow.
But older homeowners have a problem of their own.
They can’t eat the house.
On paper, many look wealthy, living in mortgage-free homes worth seven figures. In reality, they’re trying to keep up with rising living and healthcare costs on NZ Super and dwindling savings.
The traditional answer has been to downsize. And often that is the right starting point. Hopefully the move is to something smaller, warmer, single-level and easier to maintain.
But even then, many retirees still face a funding gap. That’s where people need to start thinking differently about the equity tied up in their home.
There are several ways retirees can unlock equity, but the right option usually comes back to one question: how long are you realistically planning to stay there?
Don’t confuse the romance of “I’ll never leave this property” with the practical realities of maintaining an ageing home, staying mobile and what happens if one of you eventually needs care.
For many of the members I work with at Age Brightly, my preventative health and wellbeing organisation, the goal is simple: stay in their own home for as long as possible. So we work backwards.
We price the cost of keeping the property safe and warm, future healthcare needs, and what would happen financially if one partner needs residential care.
Once you understand how much cash you’re likely to need, and for how long, the best option usually becomes clearer.
One of the most interesting solutions I’ve seen emerge is children buying a stake in Mum and Dad’s home.
The rationale is simple: parents need cash, while the kids need property exposure.
Say the parents own a home worth $800,000 but have very little accessible cash. Their adult child may not be able to buy a home outright, but they may be able to buy a small stake in the family property.
Perhaps they contribute an $80,000 deposit in exchange for 10% ownership. Depending on their income, they may even be able to raise a mortgage themselves to purchase a larger share.
That gives Mum and Dad immediate access to capital without forcing them to leave the home they love and it gives the child earlier exposure to the property market.
In some situations, the arrangement can also involve the child taking over responsibility for an existing mortgage in exchange for equity. That may not provide cash upfront, but it can significantly reduce living costs.
Even modest amounts of capital can improve retirement outcomes.
It could fund renovations that make the bathroom safer, improve heating and insulation, or provide money for surgery, mobility support or healthcare that helps arrest further decline.
For the child, the benefits can also be significant.
It provides exposure to capital growth and an easier entry point than trying to save a full deposit while paying high rents. More importantly, it creates momentum.
When home ownership feels impossible, it’s tempting to stop aiming altogether. But a tangible goal can redirect financial energy much earlier.
Of course, this arrangement isn’t as simple as transferring cash into Mum and Dad’s account.
If the child owns 10% of the property, should they also pay 10% of rates, insurance and maintenance? Should the parents pay 10% of market rent? What happens if renovations are required? What if siblings feel disadvantaged?
There is no universal structure that works for every family, but there absolutely does need to be a structure.
These arrangements should be transparent and legally documented and advised. One common structure is ownership as tenants in common, where the parents might own 90% and the child 10%.
That way, if the estate is eventually divided between multiple children, the purchasing child already legally owns their stake and only the remaining portion forms part of the estate.
Interestingly, inheritance itself is often the barrier that stops people exploring options like this.
I understand wanting to leave something to the kids. I do not understand freezing through winter or hobbling around on a ruined knee in order to preserve an inheritance.
Most children don’t want their parents suffering unnecessarily so they can inherit a larger house deposit later.
And if you aren’t living well independently, the decision can eventually be taken away from you through a fall, illness or a move into residential care.
Sometimes investing in your independence preserves more wealth overall than trying to preserve every dollar of equity.
Other ways to access housing equity
A reverse mortgage involves borrowing against the house, but instead of making repayments, the interest is added on to the loan balance over time. The challenge is higher rates and compounding debt.
If the loan is likely to exist only for a short period before the property is sold, that may be manageable. But if someone intends to remain in the property for 10 years or more without repaying the debt, the cost can become substantial.
Which brings us back to the first question: how long do you realistically need this arrangement to last?
If the answer is that you have no intention of repaying the loan, then you need to think carefully about whether a reverse mortgage is the best fit over the long term.
There is also a newer option entering the market: lifetime income or home reversion products.
These arrangements don’t involve debt or compounding interest. Instead, you sell a portion of your home to an equity release company in exchange for either a lump sum or ongoing income. If you plan to stay in your home for another 10 years, it is likely to be cheaper than a reverse mortgage.
None of these options are free.
You are giving up future housing equity in exchange for current liquidity.
But don’t obsess over preserving every dollar of equity. Instead, focus on what that equity is supposed to do.
If your home is your main retirement asset, then it needs to actively support the people living in it.
Proactively investing in your independence can save you money overall. Residential care can easily cost more than $10,000 a month, and the average stay is around 18 months.
You do the maths.
The earlier families plan, the more choices they keep. It may also be one of the most valuable financial planning exercises a family undertakes.
You generally have far more control over this phase of life than you realise. But you have to start early.
Tips for families considering home equity options
Start early
More time means more choices. Waiting for a health or cashflow crisis usually means fewer options.
Be honest about timing
Don’t plan around “I’ll never leave.” Think about mobility, maintenance, care needs and whether the home still works in 10 years.
Put it in writing
Property deals between family should never rely on goodwill alone. Get legal advice and document ownership, costs, responsibilities and exit plans.
Plan for things going wrong
Illness, divorce, financial stress, care needs or someone wanting out early can force a sale at the worst time. Agree upfront what happens in those circumstances.
Invest in independence
Heating, insulation, safer bathrooms, mobility support and healthcare can be cheaper than losing independence sooner.
Think beyond the obvious
Adult children might buy a stake, take over a mortgage, or join forces with parents to buy a home that works for everyone.
Hannah McQueen is the founder and director of Age Brightly. She is also the host of The Next Bit podcast on iHeart Radio.