Money and Whānau

Case Study: Banking on the whānau

Mitch and Ripeka work hard, have reasonable skills and together earn a pretty decent household income. 

However, there’s a big blot in their finances. Despite the fact that they saved hard for years to put together a deposit on a first home they are now renting and owe almost $30,000 in personal debt. 

What went wrong?

In this case their generosity has dealt them a cruel blow. Mitch’s brother Troy, who had  been a bit of trouble all his life, seemed to be getting his act together and decided to open a business but the bank would not lend him any money – he had no assets to secure the debt and his income record was poor. 

He turned to Mitch and Ripeka and they lent him the $50 000 of value that they had built up in their home by arranging a second mortgage. 

It all soon turned to custard. In no time at all the business folded and with it went Mitch and Ripeka’s money. They could not keep up the mortgage payments and the bank disposed of the house in a mortgagee sale for less than they had paid. Their house is now gone and they are still in debt.  

Things to think about:

Consider whether you can give other support. Before getting into business or lending money to whānau you need to think carefully about your financial situation and what you can afford. Give your love and your time instead, e.g., taking care of tamariki, lending an ear or spending time together. 

Don’t raise a mortgage to bail out whānau.
 Your home is at risk. You could end up homeless and owing additional money, as the bank will sell your house for what it can get quickly. You still owe the full amount you borrowed. 

If the bank won’t lend there is a very good reason –
 they know that the borrower is unlikely to repay. It doesn’t pay to bet that you know better than the bank how to choose a borrower. 

Take security over any money you lend. 
For example if you lend your son money to buy a car have the ownership in your name. Then it’s your car and you can sell it if he doesn’t keep up the payments. 

Get informed. 
If you are considering helping out a family member financially make sure you are entirely informed about what your responsibilities would be in the worst case scenario. Banks are legally obligated to ensure that family members know what they are getting themselves into before they agree to lend.