It seems like soaring house prices have been with us for a while, and despite a recent softening in the last 12 months (to November 2023), the continuing cost of living crisis means that little has changed for first home buyers in terms of affordability. It is hard for many first home buyers to save for a deposit, when they often have little in the way of available income for savings and house prices continue to be out of reach.
There are plenty of creative solutions out there
In some cases house buyers are moving out of the big cities to the provinces, where house prices are more affordable, especially if they can work their existing jobs from home.
In other cases we are seeing models of joint ownership and/or joint funding. The Bank of Mum and Dad has been a significant property investor for some time. But this can lead to issues with inter-generational wealth transfers, fairness between family members who are not purchasing, and difficulties with relationship property claims between the owners in the event of separation. These problems can be resolved with a degree of estate planning and documenting advances to the homeowners, as well as Contracting Out Agreements.
These arrangements will not suit everyone, and parents or family are not always in a position to help. In those cases we see more purchasing with multiple parties who can protect their investment and their ability to remove their equity by entering into a Property Sharing Agreement. The group can include parents, brothers and sisters or just friends. The benefit of having these arrangement documented is that it always suits everyone at the start, but sooner or later one or more parties will want to pull their share out, and what is needed is a fair, simple and cost effective process agreed in advance for doing so.
At the other end
At the opposite end of the home ownership rainbow, soaring house prices can have an effect on those who are separating in circumstances where neither partner can afford to buy out the other, or to get back on the house ownership ladder from the proceeds of settlement. In this case both parties will struggle to achieve home ownership if they are unable to find a way for one of them to stay in the home. This may have implications for others, particularly any children from the relationship.
One way to overcome this situation is to have one of the parties leave a certain amount of money in the house to give the other party time to raise the necessary funds for a full buyout. This arrangement can cause problems, however if the person staying in the home can not meet the requirements of servicing this debt. The lender may face the unhappy choice of accepting a reduced return on their interest in the property or putting their family out on the street to enforce the debt.
One way to solve this is to reduce the cash requirements for settlement by transferring a share in the property to a trust for the children in the relationship. The person retaining the home is then required to raise a significantly reduced sum of money and the child/children (through their Trust) are already well on their way up the property ladder, when such an opportunity may well never have been otherwise available to them.
Client Legal Solutions is very much focussed on finding practical solutions for your property ownership, Estate and relationship property issues. If you need help or just need to work out the implications of your existing arrangements or your next move, please get in touch with Gerard Praat on g.praat@clientlegal.co.nz
