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Getting your foot on that crucial first rung of the property market ladder can seem like a giant leap. Interest rates are continuing to rise in the short term at least and lenders are scrutinizing your income-to-debt ratio like never before. Many renters are sick of pouring dead money into their landlords’ property portfolios and are starting to look outside the square for ways to secure a mortgage that they can afford, and purchase a home that they can enjoy living in.
With this in mind, we explore some creative lending solutions that give you that crucial first step up.
Why would people look for alternative ownership?
Traditionally first 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 is becoming unattainable for many and alternative routes to the housing market are being investigated. Here are a few ideas that may accelerate your way into a new home!
What is it?
It can feel like home ownership is becoming increasingly difficult for single people. Two incomes are undoubtedly favoured by lenders and this can be incredibly frustrating for much of the population. However, your relationship status shouldn’t dictate your opportunity to own a home and shared ownership is becoming an increasingly popular option.
How does it work?
Joining forces with a family member or friend is a viable solution for leaping into the property ladder. With a dynamic not dissimilar to flatting, the key to success is clarity from the beginning. Ensuring the legalities of the partnership are agreed upon and documented is the first step. Negotiating the little details before leaping can ensure that the process is smooth and the living arrangement is harmonious.
Alternative lending structures
What is it?
Several banks have responded to the changing financial needs of the challenging economy and have created products specifically for first-home buyers with stable incomes to obtain their first mortgage.
Essentially these are structured loan agreements that reflect the shared ownership model. Designed for siblings, friends, or even single parents working together, these loans are a great way to structure your finances for shared ownership.
Other lenders have created products such as Squirrel LaunchPad designed to assist borrowers with smaller deposits seeking home ownership in metro areas.
Check out the links below for various lenders who support this approach.
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.
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.