There has to be a better way to get on the property ladder than buying 50 years ago. With the prospect of owning a home a mere dream for so many, the option to Co-own may be the solution some are looking for. But how does it work?
It’s never been more difficult to buy a home in New Zealand than it is now. At the end of 2021, annual house price growth peaked at 30%, and with high costs of living, saving the amount needed for a deposit is becoming harder and harder.
Even with savings, a decent sized KiwiSaver fund to draw from, and a well-paying job, owning a home can still feel out of reach for huge proportions of first home buyers. For those outside of a two-income family, getting on the property ladder can often seem like an impossibility.
Reimagining what home ownership looks like can provide an alternative way into the market. Teaming up with others can create the resources required to get a foot in the door and then onto the ladder. Whether buying with your family, friends or flatties, the ability to share a home loan could change the game for many New Zealanders. The concept and process of co-ownership, although around for a while, hasn’t been that well-understood.
Kiwibank’s new Co-own aims to fix that. The Spinoff spoke to Philippa Scott, mobile mortgage manager at Kiwibank about what Co-own is, and how it could help Kiwi into their first homes.
What is Co-own?
It’s where friends or family may be able to get on the property ladder sooner by teaming up to get a home loan. Combining savings with others offers customers the chance to achieve the deposit goal together and provides the ability to share ongoing property-related expenses such as home maintenance, rates, and insurance.
Is this a completely new idea?
Actually, no. Customers could always come together to jointly purchase a property. What Kiwibank is doing with Co-own is giving visibility to this alternative pathway to home ownership. We want customers to know that it’s there as an option, we have a process in place and we’re ready to talk about it.
How would this work?
As a group, you’ll be combining resources to borrow money together so you can purchase a property. You’ll need to talk through everything among yourselves and understand each person’s goals and needs for buying a house. Discuss how much everyone can contribute and then speak with a Kiwibank home loan specialist to see whether Co-own will work for you.
You’ll be guided through the conditional approval process together with your Kiwibank home loan specialist to figure out how much money you could borrow to spend on a property. Then it’s up to you to find a house that suits everyone’s needs!
When buying property with others, what do I need to think about?
Get a lawyer. Seriously, get a lawyer. A good property lawyer will be able to advise on the risks and help you draw up a property sharing agreement. The property sharing agreement is between all of the co-owners. You’ll want to go into detail about how your particular situation will work, so everyone understands their rights and obligations. A written agreement is absolutely vital to provide the guidance needed to support everything going to plan – and help out if things don’t go as expected.
I’m young, with good career prospects, a decent income and a growing KiwiSaver nest egg – but still years away from meeting the requirements for a home loan. How could Co-own get me there?
Let’s say you have a close friend who’s in a similar position to you. Individually, neither of you has enough saved for a 20% deposit, or sufficient income to meet loan repayments on your own to purchase a property. But together, you have enough saved for a deposit right now and your combined incomes would be enough to meet the loan repayments and other property ownership costs. Co-own could get you into a home together.
Who would Co-own work best for?
There are many different ways Co-own can look, and it’s different for everyone, whether you’re borrowing with close friends, siblings, parents or even two couples teaming up. It can vary – but we do regard it as important that the applicants know each other well enough that there can be a genuine relationship of trust. We’ve helped brothers and sisters into joint home ownership. Often, applicants are already flatting with each other – or they may be long-term friends who agree to buy a house together as a way to get into property ownership. There are a lot of risks with co-ownership and borrowing money with others to think about and discuss with your lawyer. Things like how your credit rating could be impacted if things don’t go to plan.
Is this a forever thing?
Not necessarily. It can be conceived as a stepping-stone from the start. Co-owners may well go in with a plan to eventually go their own ways – either selling up and taking their respective capital gains (if any) and buying their own properties, or one party buying the other out after a period of time has passed. The property sharing agreement should set out a workable formula and process to follow for these and other scenarios.
What if things go wrong and one co-owner doesn’t meet their obligations under the home loan agreement?
We’ll discuss this with you during the application process – it’s very important to be clear on what happens in the worst-case scenario and how you would manage it. Parties to a joint loan agreement are jointly and individually liable. If one party can’t meet their financial obligations, we would give the other party the opportunity to pay and maintain that loan.
Some form of income insurance is generally a very good idea. As all parties are responsible for the home loan, you would want to ensure you have protection in case something impacts on your ability to earn an income.
Is there more to know?
Taking the first step towards owning your own home can be a scary prospect, but Co-own could make it feasible for you sooner than you think.