ALTERNATE WAYS TO GET ON THE PROPERTY LADDER

Getting my foot on that crucial first rung of the property market ladder felt like a giant leap. With interest rates continuing to rise in the short term and lenders scrutinizing my income-to-debt ratio more closely than ever, it was a challenging environment. As a renter, I was tired of pouring money into my landlord’s property portfolio and started to look for creative ways to secure a mortgage I could afford and purchase a home I could enjoy living in.

With this in mind, I explored some creative lending solutions to give me that crucial first step up.

Why I Looked for Alternative Ownership

Traditionally, first-time homeowners have followed a linear pathway to buying their first home. With interest rates creeping up and conventional lenders requiring a 20% deposit, this system was becoming unattainable for many, including myself. Here are a few ideas that accelerated my way into a new home!

Alternative Options I Considered:

• Shared ownership
• Parent as guarantor
• Rentvesting
• Progressive Home Ownership
• Squirrel Launchpad
• YouOwn
• CoOwn

Shared Ownership

What Was It?

Homeownership was becoming increasingly difficult for single people like me. Two incomes were undoubtedly favored by lenders, which was incredibly frustrating. However, my relationship status didn’t dictate my opportunity to own a home, and shared ownership became an increasingly popular option.

How Did It Work?

Joining forces with a family member or friend was a viable solution for leaping onto the property ladder. With a dynamic not dissimilar to flatting, the key to success was clarity from the beginning. Ensuring the legalities of the partnership were agreed upon and documented was the first step. Negotiating the little details before diving in ensured that the process was smooth and the living arrangement harmonious.

Pros:

• Accelerated home ownership
• Favorable financial proposition for lenders
• Eligible for First Home Grant and Kiwisaver

Cons:

• Needed to ensure we were on the same page from the beginning
• Had to be able to live together until we could part ways and buy homes independently

Alternative Lending Structures

What Was It?

Several banks responded to the changing financial needs of the challenging economy and created products specifically for first-home buyers like me with stable incomes to obtain our first mortgage.

These structured loan agreements reflected the shared ownership model and were designed for siblings, friends, or even single parents working together. These loans were a great way to structure finances for shared ownership.

Other lenders created products such as Squirrel LaunchPad, designed to assist borrowers with smaller deposits seeking home ownership in metro areas.

Exploring these options gave me hope and a clear pathway to achieving my dream of homeownership despite the economic challenges.

Check out the links below for various lenders who support this approach.

Kiwibank CoOwn 

YouOwn 

Squirrel LaunchPad 

Rentvestment

What is it?

Your career, family and friends may be located in a region where the property is too expensive for first-home buyers however your financial position may be sufficient for ownership in another area.

If so, ‘Rentvestment’ could be an option for you. This concept essentially means you purchase a property and rent it out to tenants while remaining in a rented property in the area of your choice.

Removing factors such as proximity to work and amenities can open up many more options allowing you to focus on investment benefits such as capital gains and rental yields.

How does it work?

Lenders consider first-home buyers focused on investment slightly differently from those who are looking for an owner/occupier mortgage. Criteria restrictions would remove access to your Kiwisaver and the First Home Grant and you will need to provide compelling evidence that you have sufficient income to cover the mortgage should a tenant default on payment and you will need to insure the home against potential damage. Engaging a property management company (link to property management page) can remove some of the risks.

PROS!

• Less limitation on the location and style of home that you purchase.
• The opportunity to own a home and benefit from capital gains, faster.

CONS!

• No access to government-funded options such as First Home Grant
• The burden of managing tenants

Many of these arrangements rely on a strong trust model with the people you choose to leap with, but the gains you can make will accelerate your path to financial independence.

All blogs are opinion pieces only. These are designed to create inspiration for you to explore your options and should not replace independent financial advice.