Exploring Innovative Paths to Property Ownership
At Classic Property, we understand that the traditional route to homeownership may not always be feasible in today’s market. Rising interest rates and stricter lending criteria make it challenging for many aspiring homeowners to gather a 20% deposit and secure a mortgage. As a result, individuals are seeking alternative avenues to fulfil their dreams of owning a home they can truly enjoy. In this article, we delve into creative lending solutions that can provide you with the crucial first step onto the property ladder.
Why Consider Alternative Ownership?
The conventional pathway to homeownership often involves facing obstacles that may seem insurmountable. With interest rates rising and lenders demanding hefty deposits, many prospective homeowners are exploring alternative methods of entering the housing market. Let’s explore a few innovative ideas that can help fast-track your journey to homeownership.
Alternative Options: • Shared ownership • Parental guarantor • Rentvestment • Progressive Home Ownership • Squirrel Launchpad • YouOwn • CoOwn
Shared Ownership: What is it? Homeownership can be incredibly challenging for single individuals. Lenders typically favour dual incomes, which can leave many feeling frustrated. However, your relationship status should not dictate your ability to own a home. Shared ownership is an increasingly popular option that offers a solution.
How does it work? Teaming up with a family member or friend can be a viable solution for stepping onto the property ladder. Similar to flatting, clear communication and legal agreements are vital for success. Establishing a solid partnership and documenting the details upfront ensures a smooth process and harmonious living arrangements.
PROS! • Accelerated path to homeownership • Favorable financial proposition for lenders • Ability to utilize First Home Grant and KiwiSaver
CONS! • Requires careful alignment and commitment from both parties until you can eventually part ways and purchase a home independently
Alternative Lending Structures: What is it? Several banks have recognized the evolving financial needs of first-home buyers in today’s challenging economy and have introduced products tailored specifically for them. These structured loan agreements mirror the shared ownership model and cater to siblings, friends, or even single parents working together. They offer a practical way to manage finances for shared ownership.
Other lenders, such as Kiwibank CoOwn, YouOwn, and Squirrel LaunchPad, have also developed products to assist borrowers with smaller deposits in their quest for homeownership in metropolitan areas.
Rentvestment: What is it? Your desired location may have property prices beyond the reach of first-home buyers, even if you have sufficient finances. In such cases, “Rentvestment” could be an option worth considering. This strategy involves purchasing a property and renting it out to tenants while you reside in a rented property in your preferred area.
How does it work? Lenders have slightly different criteria for first-home buyers pursuing investment opportunities rather than owner-occupier mortgages. You may not have access to government-funded options like the First Home Grant or KiwiSaver, and you must provide compelling evidence of sufficient income to cover the mortgage in case of tenant default. It is also essential to insure the property against potential damage. Engaging a reputable property management company can help mitigate some risks associated with managing tenants.
PROS! • Flexibility in choosing the location and style of the property you purchase • Opportunity to benefit from capital gains and rental yields
CONS! • No access to government-funded options like the First Home Grant • Responsibilities of managing tenants
Many alternative ownership arrangements rely on trust and collaboration with the individuals you partner with. However, the potential gains can expedite your journey toward financial independence.
Please note all blogs are opinion pieces only. These are designed to inspire you to explore your options and should not replace independent financial advice.