Thinking Outside the Box to Home Ownership

Buying your first home remains one of life's major milestones. Unfortunately, for many New Zealanders, getting onto the property ladder has become increasingly challenging.

While saving a deposit is still important, many first-home buyers find that the real hurdle is meeting lending criteria and demonstrating sufficient income to service a mortgage. Rising living costs, higher interest rates and debt-to-income lending restrictions have made home ownership feel out of reach for some buyers.

The good news is that home ownership does not always have to follow the traditional model. Sometimes thinking outside the box can create opportunities that may not otherwise seem possible.

Shared Ownership

One option that is becoming increasingly common is purchasing a property with friends, siblings, parents or other family members.

By combining deposits, incomes and borrowing capacity, buyers may be able to purchase a property sooner than if they were saving and borrowing on their own.

In most shared ownership arrangements, each owner holds a separate share of the property as tenants in common. Those ownership shares do not need to be equal and can reflect each person's financial contribution.

While shared ownership can be a fantastic way to enter the property market, it is important to discuss expectations from the outset. What happens if one person wants to sell? How will maintenance costs be shared? What if someone cannot meet their financial commitments?

These issues should be addressed in a carefully drafted Property Sharing Agreement.

Family Assistance

Many first-home buyers are fortunate enough to receive assistance from parents or other family members.

This assistance may come in a variety of forms, including:

• A gift towards the purchase price
• An interest-free loan
• Assistance with meeting lending criteria
• Purchasing a share of the property alongside the buyer

Regardless of the structure, it is important that the arrangement is properly documented to avoid misunderstandings and to protect all parties involved.

Parent Guarantees

Some parents choose to assist by guaranteeing part of a loan rather than providing cash.

A guarantee can help buyers bridge a lending gap, but it is important for both parents and buyers to understand the risks. If the borrower defaults, the guarantor may become liable to the bank.

Independent legal advice should always be obtained before entering into any guarantee arrangement.

KiwiSaver Still Plays an Important Role

KiwiSaver continues to be one of the most valuable tools available to first-home buyers.

Many buyers are aware they may be eligible to withdraw funds from their KiwiSaver account towards the purchase of their first home. What is less well known is that multiple eligible purchasers may be able to use their KiwiSaver funds towards the same property purchase.

When combined with shared ownership or family assistance arrangements, KiwiSaver can form an important part of a broader strategy for achieving home ownership.

The Importance of Getting Advice Early

Too often, buyers assume they cannot purchase a home and do not explore the options available to them.

Speaking with a mortgage adviser, accountant and lawyer early in the process can help identify opportunities and structures that may make home ownership achievable sooner than expected.

There is no one-size-fits-all solution. Every family's circumstances are different. The key is understanding your options, the risks involved and ensuring that the appropriate legal documents are in place from the start.

Buying your first home may not look exactly as you originally imagined, but with the right advice and some creative thinking, it may be closer than you think.

(Article first published in the Raglan Chronicle, October 2017)