Could be a good option to get on the property ladder
Getting on the first rung of the property ladder is becoming harder than ever to achieve. The reasons why are well known — sky-rocketing house prices, higher rents and costs of living, tight lending restrictions and a shortage of housing stock. This perfect storm presents a living nightmare for first home buyers. Is it time for prospective homeowners to give up on the Kiwi dream of home ownership? If not, there are other options.
The Kiwi dream
There are significant social and economic benefits to communities from the security that comes with having an established place to live. It brings freedom from the uncertainty and stresses of renting coupled with anxiety as house prices continue to rise. These benefits make the housing dream worth chasing and have driven private companies, the government and charities to provide innovative solutions to help Kiwis (with a variety of incomes and house price brackets) into home ownership. Necessity is, after all, the mother of invention.
Co-ownership
Co-ownership (or shared ownership) is a practical tool to get on the property ladder: by ‘shared’ we don’t mean pooling funds and cramming into one house with several other families (or your closest friends) bunk-bed style.
Co-ownership means buying the percentage of a property that you can afford now, with a silent partner (either a company, the government or a charity) providing the balance. Together you ‘co-own’ the property in those shares. The home is yours to enjoy. You are free to paint the walls, change the carpet, hammer in picture hooks and plant a garden. In return, you pay the rates and insurance, and maintain the property.
You pay a fee (or interest) for the co-owner’s share, and in time (either by an increase in the property’s value or because your financial position has improved) you can buy out your co-owner. Boom — full ownership!
Filling the deposit gap
For many prospective buyers, their inability to save a large enough deposit is the main barrier to getting a loan from a bank. Most are quite capable of servicing a mortgage but cannot save for the required (and ever-increasing) deposit amount because life gets in the way.
The gap between the deposit saved and the deposit required is just too wide for many. This is where co-ownership initiatives help people who don’t fit mainstream mortgage criteria.
Buying a first home provides Kiwis (who have been in KiwiSaver for at least three years) a ‘single use’ key to unlock those contributions which can assist towards 5% of a house deposit. If you have 5% of a deposit, you can use the co-owner’s contribution to top up the deposit required for regular retail lending — without having to resort to a second-tier lender.
If the worst happens – what next?
As well as the upsides of owning property, what happens if the property market dips, your personal financial situation doesn’t improve or if your relationship breaks up?
If things really go belly-up, the house can be sold, the mortgage repaid and your co-owner shares in the loss (or the gain) in the percentage ratio that they contributed at the outset. Or there may be other options; always talk with your co-owner as they may be able to offer alternatives.
Some co-ownership options
New Zealand Housing Foundation: Help from this charity is limited to people buying new houses that are located only in New Zealand Housing Foundation developments. The income cap is $95,000. Find out more at: www.nzhf.org/affordable-home-ownership/
Kāinga Ora: The government’s First Home Partner programme is also for new houses only. You must be able to contribute a minimum 5% deposit and the total household income cap is $130,000. It will contribute a maximum of 25% of the house value or $200,000. For more information on this, go to www.kaingaora.govt.nz and search for First Home Partner.
YouOwn: This privately funded company operates nationwide: it manages investment from not-for-profit entities to support co-ownership in the community. It allows co-owners to buy existing properties, as well as new ones. There is no income cap or house value limit. Eligibility criteria includes a 5% deposit, minimum household income of $110,000, and no or low debt. You pay 4.95% per annum on YouOwn’s share and can buy them out after five years. Go here to find out more: www.youown.co.nz
And there are other organisations and private co-ownership schemes and arrangements that you could investigate.
Conclusion
In high-price areas such as Auckland (actually, almost anywhere in New Zealand now) and without access to a ‘bank of Mum and Dad’ to solve the deposit gap, a co-ownership arrangement may be the best opportunity for prospective buyers wanting to escape private rentals and have a place to call their own.
Each scheme has different terms, eligibility criteria, restrictions and limitations. Come and talk to us to ensure a full understanding of the co-ownership journey. So, check out the co-ownership possibilities and keep the dream alive. It may be you, or someone you know, who could use a helping hand onto the property ladder right now.
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DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are the views of the authors individually and do not necessarily reflect the view of this firm. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit being given to the source. Copyright © NZ LAW Limited, 2022. Editor: Adrienne Olsen. E: adrienne@adroite.co.nz. M: 029 286 3650. ISSN 1174-2658 (Print) ISSN 2744-3973 (Online)