Kainga Ora’s shared equity scheme also closed to new applicants 18 months ago. I enquired as to when it might reopen but the Ministry of Housing gave a vague answer: “A decision about the future of the First Home Partner scheme will be made public in due course.”
The good news is there are other options. They all work slightly differently – but the starting premise is if you’ve never owned a home before it’s worth finding out more.
There are more providers than I can canvas within this column, so these examples are to give you an idea of some of the different models – shared equity, leasehold tenure and rent-to-buy.
Shared Equity
Several organisations operate variations of a “shared equity” model, which means they stump up a portion of the purchase price and own a portion of the home, which you aim to buy out eventually.
Auckland councillor Josephine Bartley bought her first home at the age of 52 through Tamaki Regeneration’s shared equity programme “Own It”. She says: “As a single person on one income, I wouldn’t have been eligible for a large mortgage on my own, so a shared home ownership model worked for me and now that I am in my home I can work towards buying their 30% shareholding.”
The major benefit of shared equity is you can buy with a smaller deposit, and loan repayments are more affordable as you aren’t charged interest on their stake.
All programmes have their own rules. In Tamaki Regeneration’s case they include needing to show a connection to the three specific Auckland suburbs it’s available in and household income between $85,000-$150,000 /year.
Leasehold tenure
Land is usually the most expensive component of a home and Queenstown Lakes Community Housing Trust’s “Secure Home” programme is one example of efforts to surmount that.
Theirs is a leasehold tenure model, where you borrow to pay for the cost of building the house, but you don’t own it, or the land it sits on. Instead, that payment gives you a right to occupy the house, and you then pay a ground rent to the trust to lease the land. While that adds cost, your loan repayments are going to be less than half what they would be if you bought a traditional fee simple property.
It appears to come without the traditional fishhooks of leasehold properties, where the ground rent can skyrocket. They base it on 1.5% of the initial land value, but that value can’t increase more than 2% each year, regardless of what house prices are doing.
However, when you want to “sell” (that is, relinquish your right to occupy) it can only be back to the trust, and only for the price you paid, adjusted for inflation – again is capped at 2% per year. Therefore, the only equity you build is the debt you repay, so it doesn’t work as well in giving you a leg up to the next rung of the ladder.
Again, there’s an income cap – $130,000 a year – and restrictions on what you can do with the property (so don’t be thinking it would make a good AirBnB option!)
Rent-to-Buy
Often one of the biggest barriers to saving a deposit is sky-high rent, which is where Habitat for Humanity’s rent-to-buy programme “Progressive Home Ownership” could be an option.
Qualifying applicants are charged “affordable” rent for the first five years they live in the new home, and that rent, less Habitat’s costs, begins to build up the deposit which after five years can be used to help purchase the home.
This option helps provide housing security immediately and speeds up the pace you can save your deposit. But be ready to be an active participant – 500 “sweat equity” hours are required, and you have to work with a financial mentor.
Shared Equity without the income cap
One of the biggest barriers to utilising most home ownership schemes is the income cap – so if you earn “too much” to be eligible and yet are still struggling to get there, this is a potential option – although it comes at a cost.
You Own will contribute up to 15% of the purchase price and doesn’t stipulate a maximum income. However, you need to earn enough to get 80% bank lending and pay their “equity charge”, which is 5.95% of their stake. If they put in $100,000, you’d pay $5950 a year on top of your mortgage payments, so you need the income to make the sums work for bank lending. That cost is locked in for five years, after which you can buy them out.
Westpac’s “Shared Home Ownership Report” suggested tens of thousands more New Zealanders could be helped into home ownership through such schemes – but most aren’t aware they exist.
While there’s plenty more to understand to figure out what’s right for you – knowing there are options rather than resigning yourself to renting forever is a good first step.
