I was recently contacted by a South African couple who wanted to buy their first home in New Zealand, but like a lot who have relocated from there they are lacking the 20% deposit they were told was required by the Kiwi banks.
They also earned too much for the common Kainga Ora backed First Home Loan scheme and so were looking at options. Like many people they were not eligible.
Like many people, they were unsure how they were going to buy their first home and so reached out to myself as an experienced and reputable non bank specialist. We had a good discussion about their situation and talked about the options that are available and that included the concept of shared ownership.
They had a good income, but only $50,000 for the deposit. In the area they were buying in they needed to spend about $700,000 and so the deposit was proving to be their biggest issue. They had already spoken to their bank and to a standard mortgage broker and were told they needed to keep saving so they would have a larger deposit. But they also could see that it might take another two or three years to save what they were told was required, and they were concerned that house prices could increase significantly in that time – they felt they could go backwards!
Initially when the concept of shared home ownership was mentioned they were not too keen, saying that they didn’t want to have someone else owning the house with them. But as they got a better understanding on how everything works and the options then they looked at this as a more favourable option for them.
In their case, after narrowing down the various ways to getting the finance we decided that there were really two main options :
- Get lending to 90% with a non bank lender. This would require getting a personal loan or gift to get the top-up for the deposit as required. They had a small personal loan with their bank, and so they could top-up that or get another personal loan to with the extra needed. Once they had 10% they could then get a mortgage to 90% for the new home.
- To use the shared home ownership option with a bank providing 80% and then YouOwn to top up giving a 20% deposit The plan was to buy for $700,000 so that would mean $560,000 with a bank at about 5.29% – 5.39% and then YouOwn to provide equity of $90,000 (13%)
There are often other options too – but in this case we were limited to these two.
How Does Shared Home Ownership Compare?
When we started to compare these options in more detail it became quite obvious that the shared home ownership option could work quite well.
Borrowing 90% means that they would have a small personal loan (approx $20,000 extra) as the option of getting any gifting was not available to them.
The interest rate for the non-bank mortgage could be approx 7.90% which is the standard rate of 7.40% plus a margin of 0.50% for being over 80%. This is only available as a floating rate so it might reduce, but it could increase at some stage too.
Doing this loan for $630,000 would cost approx $1,170 weekly and they would also have the $20,000 and that might cost an extra $100 per week.
Therefore, the total weekly cost would be about $1,270
With the shared home ownership you get low bank rates on the mortgage to 80% and then pay an equity fee for the $90,000 (13%)
Using the shared home ownership the mortgage of could be approx 5.35% would be about $720 weekly, and the cost of the equity ($90,000) with YouOwn (5.95% + $100 monthly) would be about $125 per week; hence that is a total of $845 per week.
Of course with YouOwn you will also need to buy their 13% share back off them and ‘say’ the property increases in value to $900,000 then you would then need to pay them $117,000 which is $27,000 more than they provided.
That’s the negative with shared home ownership, but if you have lower repayments you can repay / save a bit more too – it’s $425 less and so over 5-years that’s $110,000.
Is Shared Ownership going to work for you?
Buying your first home is going to be one of your biggest decisions, and how you finance the purchase is another of the biggest decisions.
You want to look at all options and decide what is right for you.
I’m a very experienced mortgage broker and work with banks and non banks to ensure that I can offer you all of the options available. Those options have to include shared home ownership and I am one of the very few brokers that has access to bank finance to go with YouOwn, and that enables me to offer this as a very competitive option.
I will stress that this is just one option, but I also suggest that you should know about it as it might help you get into a home when other options are not available to you or it might mean that you can get into a better and more suitable home.
