First-home buyers in the Bay of Plenty struggling to save a deposit may now be eligible for a co-ownership programme thanks to a $2 million investment from BayTrust.
The initiative has already helped one Bay man into his first home.
But while local real estate agents say anything helping first-time buyers on the property ladder should be welcomed, people should do their due diligence.
YouOwn is a privately-funded organisation offering a home co-ownership programme to first-home buyers. Initially set up in Auckland, the programme has assisted 40 families into their own homes in the past three years.
BayTrust's impact investment and partnership manager Terri Eggleton said due to the region's high house prices it invested in YouOwn to allow local people to enter the programme.
"Two million dollars might only get you three or five houses in the Bay of Plenty. But a $2m impact investment can help so many more people.
"We're looking forward to seeing what a difference this money will make by helping people into their own homes who otherwise couldn't afford a traditional deposit."
BayTrust has also set up a BOP Housing Limited Partnership to allow other investors to come on board and a $1m impact investment scheme for social enterprises for smaller investments of $50,000 to $250,000 could help deliver social or environmental benefits in the Bay.
BayTrust's investment is expected to allow YouOwn to put equity into about 20 local homes in the next two years, with more planned as funds are returned and re-invested.
"It allows people to buy a portion of the property they can afford right now," YouOwn executive director Nigel Spratt said.
The co-ownership arrangement aims to reduce the size of a deposit needed when applying to banks for a home loan and allows them to access lower interest rates available to homeowners with larger deposits.
People can buy out YouOwn's share after five years to eventually own the property outright.
Spratt said the deposit required on a shared ownership property was only 5 per cent, much less than the standard 20 per cent required by banks.
He said on a $600,000 property, people would need to save a $30,000 deposit instead of $120,000, which was more achievable.
"We solve that deposit gap for people who can afford to service a home loan over the long term but can't save enough to get started."
Spratt said key criteria included ensuring the buyer could borrow enough and the amount owed on other debts was low or non-existent.
He said the income threshold was typically $100,000 per household to be able to buy a home depending on the price.
One of the first-home buyers, who spoke under anonymity, said he and his partner had been looking to buy a home for a while.
The pair had a approached a local building company for a KiwiBuild home. However, as the family grew, they needed a bigger home and a KiwiBuild home was no longer an option.
"We have been saving for ages. We have tried to get onto the property ladder a few times before but it always seemed to be out of reach."
Real Estate Institute of New Zealand chief executive, Bindi Norwell, said anything helping first-time buyers on to the property ladder was to be welcomed.
"What I like about this scheme, is that it appears to have addressed the important issue around ensuring that purchasers are not too highly leveraged in terms of borrowing and that the interest rates appear to be lower than standard low-equity home loans.
"However, as part of the wider due diligence process in terms of buying a property, it's important to remind people of the magnitude of taking both legal and financial advice before entering into such an agreement."
Professionals McDowell Real Estate co-owner Steve Lovegrove said it was no surprise people were looking at creative and alternative ways to get onto the property ladder post-Covid-19.
Lovegrove said any idea to help first home buyers into the market was to be applauded, however, he warned anyone considering any other option should seek legal and professional advice.
He said the first-home buyer market, particularly in the $450,000 price bracket, was "rife with competition" and there was still a shortage of that stock in the marketplace.
Where does YouOwn get their funding from?
It is a privately-funded programme. That means there is no income cap or eligibility criteria specified by the Government.
What does YouOwn get out of this?
You do pay a monthly fee on the shared ownership.
Capital gains or losses are shared relative to ownership.
YouOwn will own the house with you until you buy our share or sell the house.
The co-ownership agreement includes your right to buy out YouOwn after five years at independently assessed market value. Until then there is an equity charge of 4.95 per cent on the money it has invested. Every five years the equity charge is recalculated based on the change in value of the property.
Pros and Cons
- Shared ownership gets you on the property ladder as an owner-occupier without overstretching yourself.
- You can determine how much you can afford at the beginning of the process.
- The third party that invests in your property (in this case, YouOwn) is a passive owner; the house is yours to do what you want with.
- The deposit is low at only 5 per cent.
- Your monthly repayments are less than if you have a low-equity loan.
- You're free to alter the house but must comply with council requirements and let YouOwn know.
- You can increase your share of the house until you own 100 per cent of it.
- You can sell your house on the open market and you can rent it out.
The cons (and their counteractions):
- Not all lenders offer home loans for shared ownership. However, YouOwn can help you find lenders.
- The selection of houses you can buy through shared ownership is more limited.
However, whether a new or existing home, it will be a quality built home in locations of long-term capital growth.
- Capital gains or losses are shared relative to ownership. As well as loan repayments, there is an equity charge on the share the third party owns.
- You pay 100 per cent of the rates and insurance.
- An additional fee may be payable if you sell within the first five years.