Other risks

Negative-equity

If your loan is bigger than the value of the property it's secured against, this is called negative equity.

Negative equity isn't necessarily a problem. But it will be if you want to sell or can't afford the repayments. What's more, Auckland property lawyer Jonathan Flaws says that some mortgage agreements give lenders the right to ask for a revaluation - and to require part of the loan be repaid or additional security be put up if you're shown to have negative equity.

He also says that with negative equity you'll need the permission of the lender to sell, and it's advisable to work with your lender to get the best price for the property. That way it's less likely you'll be pursued for any outstanding debt or have a bad-debt judgment made against you.

Risks for parents

Parents are increasingly helping their children on to the housing ladder, but there are risks in this.

Banking Ombudsman Liz Brown says that it's becoming more common for banks to suggest that parents become joint borrowers with their daughter or son (rather than simply guaranteeing their offspring's loan). But if loan payments fall behind, both borrowers become liable.

Liz Brown also points out that when a bank is lending to joint borrowers and knows that one of them won't benefit from the loan, it must advise that borrower to get independent legal advice.

Parents should also get legal advice before they offer one of their children financial assistance to buy a property. They shouldn't consult the solicitor who is representing the children. The parents' future financial needs to be considered, as well as those of other children.