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 investor partner providing the balance. Together you ‘co-own’ the property in those shares. The home is the one owner’s to enjoy (occupying owner) while the other owner has funds invested in property (investor owner).
The occupying owner pays a fee or interest to the investor owner for the portion of funds invested and in time the occupying owner can buy out the investor owner.
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 the occupying owner has 5% of a deposit, they can use the investor 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, personal financial situations change or relationship break ups occur?
If things really go belly-up, the house can be sold, the mortgage repaid and the co-owners share in the loss (or the gain) in the percentage ratio that they contributed at the outset. Or there may be other alternatives by negotiation.
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. It is also an alternative investment opportunity to those with available funds.
Consider this property ownership and investment option 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.
For more information contact Joamari van der Walt joamariv@horsleychristie.co.nz
Joamari Van der Walt │ LLB │ BComm(Economics)-Law (Stellenbosch) │
LEGAL ADVISOR
Disclaimer: This publication should not be construed or acted on as legal advice. It is brief and general in nature. Specific advice should be sought.
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