FIRST home buyers struggling to get onto the property ladder are increasingly turning to co-ownership schemes, either with parents, partners or friends, boost their buying power.
With saving for a deposit often the biggest hurdle, a new investment scheme claims to have developed a “unique calculation model” that enables the buyer to “never pay more than 60 per cent of the purchase price” of a property.
Joint Property Australia, founded by business coach Paul Ebbels, is essentially a facilitation firm that purely specialises in assisting people with joint property purchases where the homeowners purchase 60 per cent of a property, and the investor purchases 40 per cent.
But unlike most co-ownership schemes, which often require the parents putting up a proportion the family home as security, JPA refers both parties to lenders to be assessed on their portion only to take out separate loans.
After three years, the homeowner refinances the loan up to the full 100 per cent and pay out the investor’s portion plus an agreed 3 per cent of the capital growth, in theory resulting in a 12.5 per cent return per year on the initial cash contribution.
“Essentially the loans are separate,” said Mr Ebbels. “It’s one security, two loans.”
The 60 per cent buyer pays 85 per cent of acquisition costs such as stamp duty, and during the three-year period pays the interest-only mortgage repayments on the 40 per cent as “rent” so the parents are not out of pocket.
JPA charges three ‘facilitation fees’ of $1850 — one to get started, the second at the settlement of the property, and the third when the purchaser is ready to refinance and exit the investor.
If it sounds kind of complicated, well, it is.
“It’s a bit like riding a bike,” he said. “It can be a little difficult to get one’s head around it.”
It’s an untested model at this point — Mr Ebbels only has one client, and he hasn’t yet gotten to the part of purchasing his property.
Jake Dowsett, 23, a teacher from Victoria, and his partner Bridget are looking at purchasing a property in the $450,000 range somewhere in Ocean Grove. The financing is approved, and he hopes to buy in the coming months.
“The deposit on a $450,000 property was way too much to save up,” he said. “We will actually be paying the full amount of the loan, but the banks would see our income and think that we might not be able to.”
He said he was not worried about the market falling. “Ocean Grove is a pretty good area, capital growth has been around 4-6 per cent,” he said.
Mr Ebbels said if there was a correction in the market or for any reason the 60 per cent owner was not able to pay out the investor after three years, the investor’s return was reduced to 2 per cent.
“This is not something that everyone is going to be able to do,” he said.
“They have to tell us what suburb or area they want to buy in. If you said you want to buy at Ayers Rock which has had 1 per cent capital growth over the last 10 yeas, it’s not going to work.”
Mortgage Choice spokeswoman Jessica Darnbrough said co-ownership was not uncommon, but taking out separate loans might be “getting into some quite bizarre territory”.
“It’s not uncommon for parents to buy together with that kind of split, but [this scheme] might be difficult for first home buyers to understand. Many parents can’t get their heads around going guarantor,” she said.
Ms Darnbrough said the model, which relies on capital growth, was “potentially a bit risky”.
“They’re obviously under the assumption that the value will go up, and certainly if you bought in Sydney three of four years ago you’d be fine, but there are no guarantees on that,” she said.