Co-Borrowing for First-Home Buyers

With rising living costs and various challenges in the real estate sector, it has become increasingly difficult for young adults to afford their first homes.

Fortunately, there are different ways that first-home buyers can get financial help from parents or family members to boost their deposit and avoid paying a low equity premium. This article will discuss one of these structures, Co-Borrowing.

A New Loan Structure For Future Generations

Co-borrowing, also known as joint borrowing, is an increasingly popular option offered by some New Zealand banks.

The introduction of a co-borrowing plan for first-home buyers brings a flexible two-loan structure. As a primary loan, the investment under your name covers a substantial portion (up to 80%) of the loan, and a smaller joint loan for the remaining part (up to 20%), is secured by your family member. Both loans find their security in the properties owned by both you and your co-borrower, resulting in covering the full 100% of the property’s value.

The home purchaser is responsible for both loans but in some circumstances, the assisting family member may also share some responsibility e.g. interest rate decisions.

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There is no money required upfront from parents or family members, it can be structured over a shorter term for faster payoff, and their liability is restricted to only the smaller shared loan. The shared loan information and performance are fully disclosed.

The Flexible Structure of Co-Borrowing

Co-borrowing offers a flexible contribution structure, not requiring upfront cash equity, which allows for an easier way for the parent or family member to assist as a lending party. This eliminates the pressure of immediate financial limitations and allows a smoother process for both parties.

The flexibility of the co-borrowing structure allows for loans over a shorter period of time. This facilitates faster loan payoffs and offers a convenient monitoring option for future payments.

A Brighter Outlook for First Home Buyers

The rising costs of living across New Zealand, and the challenges in the real estate market have made becoming a homeowner increasingly difficult today, compared to the experience of first-home buyers 10 years ago.

Co-borrowing with its flexible two-loan structure, allows young Kiwis to leverage family assistance through avenues like parents or family members and is a viable financial solution for first-home buyers who are considering owning their own home.

Let Experts Guide the Way

As always, independent legal advice is crucial for both parties to ensure smooth and clear transitions between agreements, payment structures, and the decision-making process. Respective banks may offer risk calculators for each option, to help give further clarity to the first home buyers and affiliated parties.

Our dedicated team excels at finding the best solution for you, and all our services are underpinned by our sound financial planning and advice.

Get in touch with the friendly Rapson team today for help with loan options that suit you.