Another common one we see is people looking to buy into a property belonging to someone else - usually a friend, partner or spouse.
Let’s say Sally has a property she’s owned by herself for three years. She’s recently got engaged to Matt and they have agreed that Matt will buy into the property. Matt has a good income and $50K in Kiwisaver that he’ll contribute to his share.
Firstly, Sally & Matt will want to determine the value of the property. They might agree on a price together based on a desktop valuation (online or bank generated report), real-estate agents appraisal or a registered valuation. The first two options are relatively inexpensive (and sometimes free) whereas a full market valuation could cost you $1000 plus. Your solicitor can help out here if need be, and the key thing is that the parties agree on the value as it will form the basis of any ongoing relationship property considerations.
Once the valuation has been established and agreed on each party should seek independent legal advice and have a sale and purchase agreement drawn up. If going 50/50 ownership, this is fairly straightforward and most common.
At this point, a solicitor would normally be involved and each party would receive independent legal advice, especially if a relationship property agreement is involved.
To keep things fair it would usually be established that Sally would be entitled to any capital gains she has made since she purchased the property until the day the house becomes theirs jointly.
For example, Sally purchased the property three years ago for $600K, the new value is established at $800K. Existing lending is $400K and Matt will contribute $50K to bring lending down to $350K.
In the event they were to sell the property and not proceed forward together to purchase a new one, Sally would be entitled to the gains made prior to Matt becoming an owner ($200K, the difference between her original purchase price of $600K and the new value they agreed on at $800K).
They might then agree that Matt would receive his Kiwisaver back ($50K), and they’d split anything above the $800K value 50/50.
This is only one method of establishing an “exit strategy” as such - you can choose to set this up however you’d like to and your solicitor can support the drawing up of an agreement to formalise the discussion.
One real advantage of this scenario is that the second party is still entitled to use their Kiwisaver for the purchase of a first home and is a good way of making progress on reducing debt on your home loan.
This arrangement does mean applying for the lending again in both names so it’s not quite as simple as ‘adding someone to the mortgage’ but we will walk you through that process to make it nice and easy for you. You can apply here if you’d like to get the ball rolling!
Once the sale and purchase and relationship property agreements are finalised we’d issue loan documents for the new loan and have the old loan repaid.
We then follow the process around setting up loan structure, and planning for the future as we do when giving advice to all our clients.
To discuss this process, or anything else around home lending, feel free to reach out to the My Mortgage team or book a call below.