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How to Buy A House With A Low Deposit
First Home Buyers

How to Buy A House With A Low Deposit

Banks typically require you to have a 20% deposit. But there are ways you can still get into your first home with less than that. In fact, there are heaps of schemes that will help you to get yourself onto the property ladder.

Amy Stevens
July 9, 2023

Here are some options for you to consider when buying your first home with a low deposit:

  1. Slice and co-ownership
  2. NZ Housing Foundation shared ownership
  3. YouOwn shared ownership
  4. Squirrel Launchpad home loan
  5. Aera Ownership Accelerator

Slice and Co-Ownership

It is buying a house with someone that is not your husband or wife. Co-ownership exists if you buy a property with your girlfriend or boyfriend, parents, friends, siblings or extended family. Co-ownership can exist with lots of people — not just one other.

With rising interest rates and a dramatic rise in the cost of living, buying a property may feel out of reach. But this is only true if you are trying to buy a house on your own. Co-ownership means that you can buy a house with other people (co-owners) and put together your deposit. Individually it may not be a lot, but together it could be enough to buy space for everyone.

The advantages of Co-ownership are:

  • More affordable repayments.
  • Getting yourself on the property ladder faster.
  • It's not that different to a couple buying a home really.

Slice helps first home buyers and co-owners with cutting edge legal support; getting you on the property ladder sooner, smarter and safer.

Working with Slice on any of these providers will give you the confidence that you will be making the right decision. We are independent and work with lawyers that know co-ownership agreements inside out.

New Zealand Housing Foundation shared ownership

The Housing Foundation, founded in 2001, is a charitable organization that aims to provide affordable housing solutions for New Zealand households. Its focus is on working families who face challenges in purchasing a secure, comfortable, and energy-efficient home. The Housing Foundation works in collaboration with Iwi, other organizations in the housing sector, and receives support from prominent philanthropic institutions in New Zealand, such as The Tindall Foundation.

How do you qualify?

  • A NZ citizen or permanent resident
  • A first home buyer
  • Have at least one person in the household in a full time job.
  • Have manageable debt
  • Have some form of a deposit
  • Have a combined household income of between $85,000 to $110,000 before tax
  • Deposit will come from 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 can sell the house at the agreed share .

YouOwn shared ownership

YouOwn is similar to New Zealand Housing Foundation. In fact, two of the founders actually were senior leaders at NZ Housing Foundation. The difference between the two organisations is that YouOwn is privately held. It is independent of builders, real estate agents and home loan lenders. There are also no income caps or eligibility criteria specified by the government.

The way that it works is that YouOwn will top up your deposit required for regular bank lending. YouOwn will only ever own 10-25% of your property, depending on the agreement. This will depend on your contribution.

With you being the major shareholder, you can buy out YouOwn after five years (again, at an independently assessed market value). You will be responsible for all the usual ownership costs like rates, maintenance and insurance. Furthermore, 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.

How do you qualify?

  • You need to be a NZ citizen or a 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.

Want to learn more? Head over to YouOwn. And if you want Slice to look over the contracts for you, book a free consult with our founder, Amy.

Squirrel Launchpad Home Loan

Squirrel is a mortgage broker and lender. It launched Launchpad Home Loan in 2021. It is aimed at those who earn a lot but can’t get the 20% deposit preferred by banks and lenders.‍

The way that it works is that Squirrel can lend a maximum of $120,000. The lender is also expected to break the loan up into two parts: base and equity. The base loan is 80% on a 30 year term. Payments start off as interest only so that you can focus on paying off the smaller, and 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. 

How do you qualify?

  • 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.

Aera Home Ownership Accelerator

Aera is a financial services platform which aims to provide a place where you can both save up a deposit and take out a loan. It is not a registered bank. Aera claims that it can offer much higher savings rates because it uses similar strategies as banks and wealth management firms for higher returns.

The way that Aera works is that they will help you find a house, and monthly payments go towards building your deposit credit, getting you mortgage ready over time. And once you are mortgage ready, you can buy the house outright. You pay the pre-agreed price knowing the market can’t run away from you.

Do you qualify?

Aera suggests your eligibility will centre mostly around your ability to make healthy monthly payments.

Monthly payments for a $750,000 home might start at around $5000 a month. This payment would cover your rent, as well as building up your deposit credit. You’ll need to meet standard eligibility requirements, such as a responsible financial history, credit score and a strong commitment to buying your first home.

How to Buy a House with a Low Deposit?

You can still buy a property with a low deposit. It requires a bit more research and an understanding of terms and conditions. But it is certainly possible. And with house prices in a lull and interest rates very high, it is a perfect time to buy a property with others — whether it is with friends, family, or an organisation.

Signing up to Slice’s Free Home Buyers Software will be a great way to better understand these terms and conditions and we can help you put together a plan on how to get into your first home.

ABOUT THE AUTHOR
Amy Stevens

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