Buying your first home is no easy task these days. The booming residential property market has seen house prices rising steadily, and Reserve Bank restrictions on loan-to-value ratios mean banks are able to lend to fewer buyers if they have a deposit of less than 20%. It’s tough out there, and as a result, we’re seeing more people joining forces to buy a home.
Joining forces is nothing new and the traditional notion of couples buying homes is still the norm. According toStatistics New Zealand figures from the 2013 census, 66.7% of people who were partnered owned their own home, compared to 26.3% of people who were not partnered. However, even the joint buying power of two people sometimes isn’t enough and we’re seeing financial support coming from different sources in order to help people make that difficult first step on the property ladder.
Usually, this takes the form of mum and dad helping the kids with a deposit. And we’re not the only ones, a 2013 report from the UK pointed out that 36% of all first home buyers needed some form of financial assistance from parents or relatives. If you’re lucky enough as a first home buyer to find yourself with family willing and able to help you into a home, there are a couple of ways in which this tends to happen; one is gifting of all or part of a deposit and another is through joint borrowing.
Gifting is as simple as it sounds, the parents (or whoever it is providing financial assistance) gift a no-strings-attached amount of money that is used as part, or all of the deposit. The parents have no legal involvement in the home loan and there is no expectation for the gifted amount to be paid back — it’s a gift, plain and simple. Sometimes the gift forms part of a deposit, others times it may be more strategic in that the gift is large enough to bring the entire size of the home loan down to a level the kids can afford to repay.
The other option is joint borrowing, which relies on equity in the parents’ own home. Commonly this is setup as two loans, one that the kids can afford to repay on their own, and a second loan that both parties are responsible for. Over time, the children may like to pay off the second loan once there’s enough equity in the home.
If you’re thinking about either of these options, make sure you talk to your bank and a lawyer first so that they can fill you in on the various responsibilities for all involved and the different loan structures and accounts available to help you pay off the loan faster.
Another option that we’re seeing first home buyers take up is using their KiwiSaver money to help with the purchase. While there are conditions to meet before you can withdraw from your KiwiSaver account, it can be a useful way to get yourself over the finish line if you’re struggling to cobble together enough to buy your first home.
If you qualify, you can withdraw some or all of your contributions, your employer’s contributions any investment gains and any Government member tax credit contributions in your account at the time of the withdrawal. Only the Government $1,000 kick start contribution is out of bounds.
Aside from being a first home buyer, you’ll also need to have been a KiwiSaver member for at least three years and not buying an investment property. If you think this might be an option for you, check out the KiwiSaver website for more information.
While KiwiSaver withdrawals can only currently be released at the time of settlement, from 1 June 2015, the rules are being changed to allow a KiwiSaver withdrawal to be used as a deposit, including when a brand new property is being bought off the plans. This may make it even easier to reach your home ownership goal.