It has been a frustrating time for first home buyers in such a bullish housing market. We feel for them, we’ve been with them as they experience a market dominated by auctions and competing against investors that predominantly aren’t taking a commercial approach to their strategy.
More driven by FOMO (Fear of missing out). Many have invested time and cash only to be pipped at the post by buyers in a better position. Some have experienced this multiple times. The government have recently made changes impacting on property investor’s ability to claim interest as an expense and extended the bright line test. Effectively, a capital gains tax. As a result, Investors have all but left the property market. Those that are left are targeting new builds to take advantage of the interest deductibility exceptions. Recent reports indicate that first home buyers are shying away from the market as well. As a result, agents are reporting that there is less pressure on bidding at auctions.
There is an argument that first home buyers should cool their heels for a wee while and let the market calm down. However, it will only be a matter of time before investors realise that despite having to pay more tax, property can still be a good long term investment option.
The problem for first home buyers is that in the last year property prices have climbed beyond what most people will have been able to save to obtain a 10 -20% deposit required by the banks. If you come in with less than 20% deposit the banks ask you to have a higher monthly surplus after expenses, affecting how much you can borrow.
So what can first home buyers do?
ANZ have just adjusted their policy on apartments. They have reduced the square metre size an apartment must be to meet their standard lending policy. This will open up more affordable properties to first home buyers wanting to get on the property ladder. Mainly, in the main centers as apartments are not as prevalent in the regional centres, this will be affordable housing.
Shared ownership. Shared ownership is common in the UK as a way for first home buyers to get onto the property ladder. It has been around for over a decade in New Zealand mainly in Auckland and Queenstown. Effectively a co-owner assists in funding your deposit and takes a proportional shareholding in the property. You pay an equity charge on the funds and have the ability to buy their share out in full or partially after 5 years. A lender provides a mortgage for the balance.
We’re proud to partner with YouOwn, you can find out more about them here https://youown.co.nz/
Together, we have been assisting first home buyers using their support since 2016. Youown manage the funding of their proportional ownership which is invested by philanthropic organizations such as Baytrust. The goal is to assist people into a better financial position over time through paying down their debt and their share of the property increasing in value. Often, we get feedback like “we never thought we were going to own a home, you have changed our lives.” We love getting out of bed to hear that!
Here’s a recent example that made the news https://www.sunlive.co.nz/news/272176-bop-family-realise-home-ownership-dream.html
Having been doing it now for 5 years we are starting to see clients purchase Youown’s share out to take full ownership of the property. Their position has gone from, in some situations, a negative net asset position to having hundreds of thousands of dollars as their net asset position. Each situation will be different and it will depend on the market how quickly people pay down debt. Some individual scenarios will differ to that described as well, depending on what we can make work.
If you know anyone, a friend, a family member, or colleague that has been struggling to get into the property market, we would love to see if we can help. Sometimes we can’t make it happen straight away, but we will work with you to position yourself for a future opportunity. Six years is the longest it has taken us!!
Disclaimer: This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia. Please don’t take this as personalised financial advice. Discuss your situation with an Advisor. This is where I need to say past returns are no guarantee of future returns.