Alternative homeownership: Support for low deposit buyers

• Kāinga Ora First Home Partner scheme
• NZ Housing Foundation shared ownership
• YouOwn shared ownership
• Squirrel Launchpad home loan

It’s widely acknowledged that housing affordability and that almighty house deposit in Aotearoa New Zealand is a hurdle too far for many Kiwi. As a result, a number of government and charity organisations are stepping in to fill the gap for those who don’t have the bank of Mum and Dad as an option to supplement their deposit and get them over the line. In these schemes, you initially share the ownership and then you buy the partner out over time. Here’s a little bit about each one, who’s eligible and how they work.

With this form of shared ownership, Kāinga Ora, a crown agency, purchases the brand new home with you, and the idea is you’ll buy the share held by Kāinga Ora over time while remaining the majority homeowner and occupier. You’ll be expected to contribute a minimum of 5% of the purchase price.

How it works:

It may be that you’ve saved 10% to purchase a property and you’ve found a bank prepared to lend you 75%. Kāinga Ora then steps in and contributes 15% to complete the deal and retains a 15% ownership of the home until you buy them out. Their name will be on the title along with yours until that time.

Kāinga Ora's maximum contribution towards a home purchase is 25% or $200,000, whichever is lower. Kāinga Ora will confirm exactly how much they’ll contribute towards the home purchase once you’ve received and shared your pre-approved home loan from the lender.

Sound pretty good?

You’ll have to meet the eligibility criteria first. You must:

• Be over 18 years old
• Be a New Zealand citizen, permanent resident or a resident visa holder who is “ordinarily resident in New Zealand”
• Or be applying with someone who meets the citizenship or residency requirements and you are either married or in a civil union or de facto partnership with that person
• Have a total household income before tax of no more than $130,000
• Have a good credit rating as proven in a credit report
• Be a first home buyer
• Not previously have had shared ownership support from Kāinga Ora

This home will be your main place of residence and you’ll have to commit to living there for at least three years from the settlement date.

This charity helps people buy a majority share in new houses within New Zealand Housing Foundation developments, which are largely in Auckland and Tauranga at the moment. The buyer will typically have a majority share, say 60% or more, with the Housing Foundation owning the remainder. In the programme your mortgage payments are no more than 30%.

How it works:

Both of you are on the title and it’s expected most households are able to buy out the NZ Housing Foundation within seven to 10 years. Your income cap is $95,000 and your deposit will come from your savings, KiwiSaver and a mortgage. When you move on, you can either sell your share back to the Housing Foundation, based on an independent valuation, or you and the Housing Foundation can sell the property on the open market and share the proceeds according to the proportion of ownership - 60% / 40%, for example.

The houses are in locations where the Housing Foundation is building now and in the near future.

The Housing Foundation will help with the mortgage application process, working with major banks to support their programme. Each time you apply to buy additional shares in your property over the years, you will pay an application fee for a new valuation and administration costs. The final purchase of 15% is done in one transaction. The Housing Foundation charges an annual management fee to cover operational overheads.

In order to apply you need to be:

• A New Zealand citizen or permanent resident
• A first time home buyer
• Have at least one member of the household in a full-time job
• Have manageable debt
• Have a deposit
• Have a combined household income of $85,000 to $110,000 gross before tax

YouOwn is a privately-funded organisation offering shared ownership to first time buyers.

Two of its founding directors were senior leaders at the New Zealand Housing Foundation, one launching the foundation’s shared ownership programme. YouOwn is funded by the YouOwn Housing Limited Partnership, and Bancorp Wealth Management. The private company stresses it is independent of any builders, real estate agents or home loan lenders and there’s no income cap or eligibility criteria specified by the Government. It is registered on the Financial Service Providers Register.

Co-ownership helps people who don’t fit mainstream mortgage criteria, says YouOwn.

It gives the example where you have a 5% deposit and you then top up with YouOwn’s contribution of 15% to get to a 20% deposit required for regular retail lending without having to resort to a second tier lender. YouOwn will only ever own 10% – 25% of the property.

As majority owner you’ll pay a charge on the portion that YouOwn owns and after five years you can buy the share owned by YouOwn (at an independently assessed market value). Throughout, you’ll have all the rights of ownership and, subject to compliance with relevant law, you’re free to alter and maintain the house as you want. Together you and YouOwn will own the property as “tenants in common” and as the main owner, you’ll be responsible for all the usual ownership costs including rates, maintenance and insurance. And, until you buy out YouOwn, you’ll pay an equity charge of 5.95% (current rate) on the money they have invested in the property.

What makes you eligible:

• You need to be a NZ citizen/permanent resident
• You need to have a steady household income of around $130,000 or above the median in your location
• You’ll have less than $15,000 in debt and a clean credit history
• You will have been contributing to KiwiSaver for three years
• You’ll need a 5% deposit from savings or KiwiSaver
• You need to be buying the property to live in

Squirrel, the mortgage broker and lender, launched this financial product in 2021 for those who earn plenty but can’t get the 20% deposit together preferred by banks and lenders. And for whom Kāinga Ora isn’t an option because of the income and house price caps.

To qualify, you have to be:

• A first home buyer who intends to live in the property
• You have to have a 5% genuine saved deposit including KiwiSaver
• And to be on PAYE or a fixed term contract for at least a year
• The property you buy should be in a metro location, i.e., no lifestyle blocks

The deposit amount you have to accumulate will depend on the house price. For properties with a price above $800,000, you’ll need more than a 5% deposit because the maximum equity loan amount Squirrel is able to lend with Launchpad is $120,000.

The mortgage broker/lender breaks the loan up into two parts – the base loan and the equity loan. The base loan is 80%, the bulk of the loan, and it’s set up as a choice of a floating or fixed interest rate with a 30-year term. Payments start off as interest only so the buyer can focus on paying off the smaller, more expensive equity loan first.

The equity loan is up to 15% and it’s peer-to-peer funded. As Squirrel puts it, it’s a bit like getting help from your parents but without any awkward conversations. You can make extra payments on this five year loan at any time at no extra cost because you want to get rid of it faster. The interest rate is currently set at 9.95% in May, 2023 (interest rates are subject to change).