Options for First Home Buyers
A house purchase is often the biggest asset (and debt) a person will take on during their lifetime. Rising house prices in Auckland mean that first home buyers looking for a foot on the property ladder often need to consider alternative options such as purchasing a property with a friend or asking a family member to guarantee their borrowings.
Buying property with friends or family is becoming increasingly common. In this instance, two or more people are registered as tenants-in-common, either in equal or unequal shares. The advantages of purchasing in this way include the sharing of costs, including the property price and ongoing costs such as loan repayments and maintenance. Buyers thinking about purchasing a property in this manner need to consider entering into a Property Sharing Agreement. Among other things, the Agreement should include a record of each party’s separate contribution, each party’s obligation to contribute to ongoing costs and the terms of onselling shares in the property.
Many parents or family members may wish to help first home buyers without having to write a cheque. One way to do this is by guaranteeing the borrowings the buyer. The essence of being a guarantor is that you’re making a promise to pay the mortgage if the borrower is unable to. Buyers with small deposits often require a guarantor before banks are willing to advance funds. Going guarantor can be risky for family members but there are several things which can be done to reduce the risk. Guarantors should consider limiting the extent of the guarantee and should re-visit the guarantee with the bank as the value of the property increases and the mortgage is reduced. Guarantors should also consider getting an indemnity from the purchaser, which should be recorded in a separate document.
Regardless of the option chosen, it is imperative that first home buyers and guarantors seek legal advice prior to entering into property transactions to ensure their legal rights are protected.