Kiwibank provides alternative to bank of mum and dad

Scraping together a sufficient deposit can be a major barrier to homeownership, so many Kiwis have reverted to the ‘bank of mum and dad’.

Recognising this is not always an option, Kiwibank has developed a product aimed at helping people to get onto the property ladder sooner.

‘Co-own’ allows people to combine their savings with friends and family to achieve their deposit goal, owning a property together as co-owners.

According to CoreLogic NZ figures for the second quarter of 2023, based on the nationwide property value, it takes an average of 9.6 years to save a 20% deposit. That figure is down from a peak of 11.7 years in the first quarter, but higher than the eight-year average, and assumes homebuyers can save 15% of their gross income (based on $126,805).

Kiwibank senior product manager Pip Maxwell (pictured immediately below) told NZ Adviser that Co-own remained a pathway to support Kiwis into homeownership. 

“Not everyone looking to become a homeowner is in the situation where mum and dad can help out with buying property, so teaming up with close friends or family may be a solution,” Maxwell said.

The product allows up to four people (e.g. friends, family members, two couples) to pool their savings (generally, a combined deposit of 20% is required), all of whom are individually and together liable for the home loan.

Providing they meet the KiwiSaver first home withdrawal criteria, the product allows applicants who are KiwiSaver members to use their KiwiSaver savings towards their share of the deposit.

In addition to combining of savings, the product provides the ability for co-owners to share property-related expenses, for example maintenance, rates and insurance.

“This means our customers may be able to enter the property market sooner and buy the home they all want,” Maxwell said.

Choice of co-owners important, says bank

As Co-own is about people coming together to buy a home to live in, Maxwell said it is important that homebuyers choose people they know and trust to be co-owners. She suggested they get professional advice.

“It's important everyone thinks about what borrowing and owning property with each other may mean for them,” Maxwell said.

Deciding to get a flatmate to help pay the mortgage would be something that co-owners would need to agree on and potentially have discussed or considered upfront, she said.

Property sharing agreement recommended

Maxwell said that it was common in Co-own arrangements to have a joint home loan structure where all co-owners are borrowers.

For a joint home loan, where a person owns a share in the property, they are still liable for the entire home loan, she said.

“This means if one co-owner can't pay their share of the loan repayments, then the other co-owners must cover the shortfall,” Maxwell said.

As any defaulted home loan payments could adversely impact the credit ratings of co-owners, Kiwibank recommends that all co-owners have a property sharing agreement in place prior to the property purchase.

The property sharing agreement would set out each co-owner’s rights and obligations in relation to the property and help to ensure all co-owners are aligned and in agreement. Maxwell pointed out that the process may also bring to light potential issues before purchasers get too far down the track.

There are no restrictions around the length of time required to own the property, and each home loan is subject to Kiwibank’s current special and standard interest rates.

How advisers can support clients considering co-ownership

Mortgage advisers with clients interested in Co-own are encouraged to advocate for them by having conversations at the start of the process, to help them to avoid any potential misunderstandings.

Maxwell suggested that these conversations could include helping clients to set clear expectations, discussing their long-term goals, why they want to purchase a property with others, the amount each person would contribute towards the deposit, and the amount each person could afford towards the repayments.

Circumstances to bear in mind include where one person loses their job, if one wants to sell before the other/s and payment of unexpected costs, including property maintenance, she said.

“Let them know that taking time to work through the detail early will help ensure everyone’s on the same page when it comes to meeting with their lawyers in setting up a property sharing agreement,” Maxwell said.

Mortgage advisers interested in finding out more about Co-own for their clients can visit the Kiwibank website and reach out to their BDM.