A guide to shared ownership/co-ownership.
“Shared ownership is an ever-growing alternative method to use when purchasing your own home.”
Though it’s relatively unheard of by many Kiwis, ‘shared ownership’ is not a new idea. These days there aren’t many financially flexible options when it comes to buying a house, and this is where shared ownership comes along to change that!
‘Shared ownership’ is an ever-growing alternative method to use when purchasing your home. If you’re serious about getting your foot onto the property ladder and into a home of your choice, but your options seem unrealistic, this could be the solution to make your dream a reality.
Let’s get down to brass tacks on ‘shared ownership’ so you can decide if it might fit your circumstances and help get you into your own home.
What is shared ownership?
Shared ownership means you initially share the ownership of a property with a third party. You are always the majority owner, but instead of owning 100% of it, you may only have enough deposit and home loan approval to buy 75% to 90% of a house. And a third party, or co-owner, invests with you – owning the other 10% to 25% of the property.
If you have a steady paying job… you might be contributing to Kiwisaver… and you have some cash saved up – but not quite enough to get a home loan – YouOwn might be able to help you get a foot in the door.
Shared ownership with YouOwn is an alternative and cheaper option to a low equity loan from a bank if you don’t have 20% deposit.
Have a look at the interest rates and low equity margin for home loans on the website of your bank.
Who is YouOwn and where do they fit in the picture?
YouOwn is an impact fund established in 2017 to offer a shared ownership product for first time buyers. We want to lend a helping hand to prospective homebuyers through a programme that’s easy to understand and simple to engage with. We call our programme co-ownership.
Our journey doesn’t stop once you have your keys, we help you as you reach the five-year mark and beyond – as you work towards securing the whole home for yourself.
YouOwn is independent of any builders, real estate agents, and home loan lenders. We are a privately funded programme. That means there is no income cap or eligibility criteria specified by the government. We welcome everybody who’s interested in co-ownership with us for new or existing properties.
How does that make me a homeowner if a third party co-owns the property?
You are the majority owner of the property and YouOwn is like a passive mum and dad investor. YouOwn will only ever own 10% to 15% of the property – in effect, the house is yours to do what you want with (which includes pinning things on the walls, choosing the colours and changing the carpet – something you can’t do when you’re renting).
Your house is on its own title, and together as co-owners, you and YouOwn own the property as tenants in common. However, you are responsible for all ownership costs such as rates, maintenance, and insurance (as you would be when buying a house solo).
After five years, you can buy YouOwn’s share in the home when you are able to – which then renders you a full homeowner!
The best thing? You have one foot on the property ladder, no more worries or stress with renting, and have the freedom and flexibility of living in your own house – and creating your forever home.
Do I have to pay a fee to YouOwn?
Yes, you pay a monthly equity charge of 5.95% on YouOwn’s share of the home. Your monthly repayments are likely to be less than if you have a low equity loan, so it works out in your favour.
What if I don’t have a 20% deposit?
Good news! The required deposit is only 5%.
Is shared ownership suited for me?
To be eligible for this programme, you must be a New Zealand Citizen, Permanent Resident or hold a Resident Visa and be buying the house for you to live in. If you tick these boxes, you must then also have:
- A deposit of 5% or more from KiwiSaver funds or savings.
- Have a clean credit history.
- Sufficient household income to pay the home loan and YouOwn’s equity charge (in most locations this will be around $150,000 or greater for combined household)
These factors ensure that the necessary repayments and long-term commitments are achievable.
Can I see an example of how the financial setup might look?
For example, a property valued at $800,000 will usually require a 20% deposit for banks to lend, i.e. $160,000.
- With co-ownership, you only need a deposit of $40,000.
Will I need legal advice?
Before signing the co-ownership documents (sale and purchase, home loan and shared ownership agreements), you’re encouraged to seek independent legal advice.
- A solicitor undertakes the conveyancing transaction for both sides. This involves drawing funds from the bank, YouOwn and your KiwiSaver provider, paying the vendor on settlement and registering the home loan on the title.
I’m still not sure. What are the pros and cons of shared ownership?
The pros:
- Shared ownership gets you on the property ladder as an owner-occupier without overstretching yourself as you might with a low equity loan. You can determine how much you can afford at the beginning of the process, whereas outright ownership requires a much bigger initial financial investment.
- The third party that invests in your property (in this case, YouOwn) is a passive owner; the house is yours to do what you want with.
- The deposit is low at only 5%. This is much more achievable for first home buyers, than 20%.
- Your monthly payments are less than a low equity loan.
- You can increase your share of the house until you own 100% of it.
- You can sell your house and you can rent it out.
The cons (and their counteractions):
- Not all lenders offer home loans for shared ownership.
- YouOwn has SBS Bank as its partner bank.
- As well as loan repayments, there is an equity charge on the share the third party owns.
- Think of this as a ‘thank you’ payment to a friend for using their money, and bear in mind that in this type of programme, you’ll be moving towards ownership much quicker than trying to save 20% deposit.
- You pay 100% of the rates and insurance
- This would be the same in a full-ownership situation, so it’s not really a negative thing.
Is this for you?
Weigh up the time it will take you to save a deposit of 20%. If you think ‘shared ownership’ might just be the solution for you, then follow these steps below to see how you can start your home ownership journey!
- Apply: Check out our eligibility criteria and register your interest or complete an application online.
- Plan and pre-approval: If you’re eligible we’ll give you a rundown on our processes and refer you to a financial advisor who will arrange the home loan.
- Purchase: Find your home and sign a sale and purchase agreement.
- Settlement: You sign the loan documents with the bank and co-ownership agreement with YouOwn.
- Move in: The balance of the purchase price is paid, the bank secures a mortgage over the property and you move in!