When we started the Kiwi First Home Buyers Group over 10-years ago the aim was to help answer questions that first home buyers have, and over those years it has grown to about 60,000 members and I wouldn’t dare even try to count how many questions have been answered.
But another thing that we have seen is the amount of people that this group has helped.
Then there are the people like Tyler that think they have no chance of buying a home and yet we can help them too.
A Bit About Tyler
To give you some idea why Tyler thought he had no chance of buying his first home yet I will share a bit about him and his situation.
He does not fit the profile of a typical first home buyer!
Tyler is mid 20’s, single and earns about $65,000pa
He has managed to save a good deposit with $35,000 in his KiwiSaver (he contributes 8%) and $75,000 of bank savings. He applied for the First Home Grant and was approved for $10,000 for buying a new build.
He lives and works in Auckland and it’s not the cheapest place to buy a house.
Tyler had done what most Kiwis do, and had spoken to his bank asking what size mortgage he would get. He was disappointed as they suggested he could borrow about $300,000 so even with his deposit he was not going to be able to buy anything.
He was about to give up hope of buying a home and then his mother suggested that he contact us.
We Assessed Tylers Situation Then Provided Options
As mortgage advisers we have access to the bank Tyler currently banks with, but also to a number of other banks and non-bank lenders. The key here is we have options and can work with the banks that have the most favourable options for someone like Tyler.
To buy a home in Auckland Tyler was going to need to spend about $800,000
With his situation we calculated that he could borrow just over $450,000 which was a lot more than his own bank had suggested, but still well short of what he would need.
But we suggested two options that could help him into a home like this:
- Kainga Ora (previously Housing New Zealand) have a shared home ownership scheme called First Home Partners where they can hold ownership of up to 25% to a maximum of $200,000 of approved brand new homes. There are some conditions that you must meet to qualify, but it’s a really good way to get into a home when deposit and/or income is a bit short of what is needed.
- Even with the First Home Partners offering $200,000 he was still not able to borrow what he needed, but he was only about $30,000 short. To afford that extra $30,000 from the bank he would need an extra $5,000 of income and so we suggested that he could get a part-time job. Even a part-time job on the minimum wage of $21.20/hour for 8-hours (1-day) per week would earn an extra $170 a week or $ 8,840pa.
By using the First Home Partners shared ownership and with his extra income Tyler was able to increase his borrowing to over $480,000 and that meant he could buy a home.
Buying With Shared Home Ownership
Tyler was only able to buy now if he took advantage of the shared home ownership, and he looked at the pro’s and con’s of the First Home Partners scheme and decided it was a good option for him.
The advantage is he could get into a home where he owns 75% and later he can purchase the other 25%.
Of course if the value of the home increases he will pay more for the 25% that he is yet to purchase; however in the current market he has just saved $50,000 on what he would have paid, so even if the property value increased 20% to be worth $1,000,000 (increase of $200,000) then he would need to pay $250,000 for the remaining 25% but that extra $50,000 is equivalent to what he is saving by buying now.
If he can buy that share while the value remains low then he is on the winning side.
If he never is able to buy that 25% share, or if it takes 15-years then is that worse than staying renting?
It’s not going to work for everyone, and there may be another option; however you should get the guide that explains how the First Home Partners works.
