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Share it Own it – Family Enabled First Home Buyers plan (SiOi-FEFH)

What is it?
(SiOi-FEFH) is here to help younger generations who are looking to buy property, the ability to partner with their family to help enable them into property.

Who can benefit from this plan?
– Parents who wish to assist their child into property
– Parents who have more than one child that they wish to assist into property
– Parents who don’t want to tie up all their current home equity
– Children who cannot qualify for a bank loan, due to requirements of saving a large deposit.

Overview
When saving isn’t enough – you just need a foot in the door, and if your family’s willing, SiOi is able to assist through the Family Enabled First Home plan. FEFH works with the help of your own family and the Share it Own it platform. The equity in the parents home can be accessed in a safe and controlled way, to assist the children in purchasing their first home.

Traditional methods of mum and dad acting as guarantor, expose them to far too much risk. What happens if the children default on the mortgage, right when the parents should be enjoying their golden years? Or worse, if Dan runs off with the Nanny (again), the soon to be ex-son in law now gets half in the relationship settlement. Not at all how you envisioned things would go.

How the SiOi FEFH works, is that it gives the parents a share in the ownership of the children’s property, in exchange for funds used to get into the housing market. When the children are able to, the option exists to pay back the parents sooner by borrowing from the bank when the equity in their home increases.

FEFH – A home buyers perspective

Buying a property is good:

• Financially, owning a property can assist in building equity, which eventually can be useful for growing the family and retirement provisioning
• A home creates stability and context, a place to come home to, and an emotional anchor that can help couples get through tough times.
• For the couple, it provides a place to have children. When there’s extra bedrooms, they get filled!

Buying a property is tough though…

• Savings! Usually around 20% of the purchase price is the golden number to work towards. With the average cost of a home in excess of $1m in main city centres like Auckland, this can take years for young couples just starting out.
• The average property grows in value at a rate which is faster than the average savings account. Even if all of the net income is funnelled towards the savings account, the price increases of the property create urgency to get in sooner rather than later.
• It is possible to borrow with a deposit smaller than 20%, but the banks criteria is very difficult to satisfy. Many of the conditions restrict the type of property that can actually be purchased also.
• If a loan is actually approved at this level, the interest rates are usually very high and repayment terms overly onerous, making the first move the hardest.

FEFH – The parents perspective

• When will my kid ever get started? The longer it takes, the more likely the children will become a larger burden later on, should assistance be offered.
• How can the help the parents provide, be regulated within the family to avoid arguments at Christmas? If I give Natasha $200k to help her get started, then David and Nathan want a handout also!
• What if doug does the dirty on Dianne, and he buggers off with a share of the gift I left my daughter?!
• Will I ever get paid back? With the kids just starting out, buying a property, and popping out children, it’s going to be ages before I’ll ever see these funds again.

Is there a way to assist the children, isolate the risk for the parents, and create a win-win for both parties? We believe there is.

Example of SiOi – Family Enabled First Home

Derek and Amy bought their first home two years ago. Saving madly for 2 years they were able to come up with $40k to use towards the purchase. Due to a fast paced market and changing regulation, the minimum amount of deposit they needed was 20%, and their house they wanted cost $1.2m! At their rate of saving of $500 per fortnight, they weren’t saving at a rate that was any faster than the growth in value of the property they were chasing.

Amy’s mum and dad were keen to assist, but they just weren’t sure how. They didn’t want to ‘lock up’ all the equity in their home as they had to allow for their other son Josh to purchase something in the next 5 years also.

Share it Own it had the solution: Family Enabled First Home. Amy’s parents did not have savings but luckily they owned their own home and were almost debt free. By arranging funding with Amy’s parents’ bank of the remaining deposit required only, SiOi was able to limit the exposure of her parents to the deposit, not the loan that Derek and Amy needed.

Now, armed with the 20% deposit required, SiOi arranged funding with their preferred bank for the remaining 80% of the purchase price. $40k savings was spent renovating the property to make it fit for purpose and the rest is history!

FAQ’s

Can FEFH be used to purchase investment properties?

Yes. Although the bank rules are different, the plan is the same: The deposit only, is borrowed using the parents home as security with the bank and the balance of the mortgage is secured using the new property to be purchased.

Are there risks?

There are risks associated with borrowing in every situation – the reality is, the debt has to be repaid. SiOi has financial advisers who can assist not only in setting up of the SiOi plan, but also in advising of risks associated. SiOi can refer you to lawyers to advise on the risks also, in fact we insist all users of the FEFH obtain legal advice before proceeding.

Can FEFH be used to purchase a new home?

Absolutely! The Family Enabled First Home plan is perfect when purchasing a new build, especially for ‘turn-key’ build packages (where an initial deposit is paid, and the balance paid in one lump sum at time of completion).

Can FEFH be used when the parents contribute more than just 20% of the purchase price?

Yes! Parents can contribute as much as 100% of the purchase price and FEFH can still be a great choice to facilitate the transaction.