Are you ready for your first property partner?
In some ways, the dating process and finding your first love is not too dissimilar to what you experience when purchasing your first home. Many will attest that the process feels just as emotionally draining, which is why when it comes to your first, there is plenty to consider.
Below, I have summarised what you need to know about the government's recent initiative; The First Home Partner scheme facilitated by Kāinga Ora. The same government sub group that brought you Kiwibuild and the Home Start Grant have now gone a step further to not only lower the barriers to entry into home ownership, but to also pull back the sheets and jump right into bed with you.
As with any new relationship, there will be plenty of questions as to how this proposed partnership is going to work. We aim to help you answer some of these questions below.
So.. What is the First Home Partner initiative?
Kāinga Ora’s First Home Partner scheme is a government funded initiative that is designed to help get prospective first home buyers onto the property ladder. Assistance is provided in the form of a cash deposit in exchange for shared ownership in the property.
Shared ownership is a way of defining that the government’s contribution is a form of investment into your property. Effectively, your property is owned, in part, by the government until that equity share is paid back.
The cash contribution provided by the government is designed to bridge the gap between the collective deposit the prospective buyer/s have, and what the bank will willingly lend against the property.
For example, you may only be able to contribute 10% towards your deposit (made up of KiwiSaver, Home Start Grant and cash savings or gifted), and a participating bank is willing to lend 75% of the purchase price. Kāinga Ora would then contribute the remaining 15% in return for 15% ownership of the home. The amount that Kāinga Ora will contribute is limited to 25% or $200,000 - whichever is lower.
Here are some important things to note:
- You will need to meet the eligibility criteria which can be found on the Kāinga Ora website.
- You will need at least 5% of your own deposit (can be made up of multiple sources as per example above)
- Kāinga Ora will share the title with you, and you will be governed by a Shared Ownership Agreement
- You will need to live in the property for at least 3 years
- You will need to meet with a Kāinga Ora Relationship manager each year for a review of your financial circumstances
- It is expected that you intend to purchase the government share within 15 years, but must be purchased within 25 years from settlement
- Any renovations are subject to Kāinga Ora approval
- Kāinga Ora reserves the right to inspect your home if there is reason to believe maintenance requirements are not being met
- Sale of the property is subject to Kāinga Ora approval
Purchasing your shares back from Kāinga Ora
To purchase the shares owned by Kāinga Ora, you will need to submit an online request or arrange the purchase with your relationship manager. Purchases can either be in small increments (no less than $1,000) or paid as a lump sum. When you purchase a share from Kāinga Ora, it will be at current market value, which means the government gets a return on investment in the form of capital gains (or a loss if the market has not increased). Market value will be determined by either a desktop valuation from a data provider, or a registered valuation if requested (at your cost).
There are also implications if you do not purchase all shares back within the expected time frame. After 15 years, an annual service fee may be applied, and if you reach 25 years without purchasing the shares (and you do not reach a mutual agreement with Kāinga Ora) they may sell the home, or share of your home, on your behalf.
So, is it right for you?
Having taken that all in, there will likely be an abundance of thoughts and further questions as to whether this partnership is right for you and your situation. For many, the additional support toward the deposit will be the helping hand they need to get on the ladder and start getting ahead. For others, there will be considerations as to whether they want to be attached to the government for such a substantial portion of their property ownership journey.
Wherever those thoughts and questions take you, most will agree there are certainly some benefits to be had for those who choose to apply for the scheme. If that is the case for you, then maybe it’s time to start preparing the candle lit dinner and setting up the first date with your new prospective partner.
If you’re ready to take that next step, don’t hesitate to get in touch with us, we’d be happy to help.
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