Soaring house prices and the desperation of first home buyers to get into the market is leading to ever-more creative arrangements to take the first step, getting the deposit down.
Melbourne couple Mia and Nicola Cornthwaite signed a contract with a developer who required only a 5 per cent deposit on a flat in Brunswick in exchange for exclusions in the building (e.g. no second bathroom) and a covenant limiting the profit on any resale.
"That was make or break for us," Nicola says. "We wouldn't have been able to afford a 10 per cent deposit."
An alternative way into the market is to spread the cost of the deposit between friends or with the builder. Arrangements like this are being facilitated by brokers, banks and sharing websites.
Yolande Buckley, who's been renting in Werribee in western Melbourne, thought she'd saved enough to buy a three-bedroom house for herself and three children. She was wrong.
After months of searching, she realised even with a $350,000 budget she would still need another $20,000 to $30,000 for either a house that was ready to move in to or one that needed renovating.
That's when her mortgage broker introduced her to Joint Property Australia, which led to her co-owning her home with a builder.
Joint Property is run by Melbourne entrepreneur, Paul Ebbels. He's developed a strategy where homeowners take an affordable loan on a portion of a house while an investor, matched by the company, funds the rest of the purchase.
"If we do nothing and leave things the way they are now then the investor, with the help of negative gearing, will take an unprecedented hold on property ownership in this country. A hold that will be very difficult to recover from," he said.
But strong investor activity – which is here to stay after Treasurer Scott Morrison ruled out changes to negative gearing on Friday – works in favour of sharing projects clients since they need investor funds to piggyback on a purchase.
Under a typical model the homeowner takes out a loan of 60 per cent of the home value and the investor provides the other 40 per cent on a separate loan. The bank assesses the homeowner on assets that count towards that loan.
The two are tied together in a joint property contract which stipulates an investment period at the end of which the homeowner, having acquired enough equity in the home, buys out the investor. During that time, the homeowner also pays the interest on the investor's loan.
Mr Ebbels uses an algorithm he developed which produces a set return for the investor's joint deposit, usually higher than the cash rate – the average so far has been about 2.75 per cent. The capital growth on the whole property reverts to the homeowner.
"If you are in mortgage stress, we also talk to the investor or other investors to put in more into the deal," Mr Ebbels said.
While there are many banks and brokers which offer co-ownership loans, there are no other known businesses which match investors like Joint Property.
In Ms Buckley's case, her builder fronted up just over $20,000 to help her build a new house in Bacchus Marsh, just west of Werribee.
She says by utilising the website she and the builder pushed the boundaries further. This helped her to "get the home that would otherwise be out of reach".
Inevitably spreading the load has its financial compromises. In the case of the Cornthwaites that doesn't really hit until resale.
Jessie Hochberg, general manager of Nightingale Housing which is developing the Brunswick property which the Cornthwaites are buying into, says values will increase in line with the market. But she says, "the initial purchaser can't flip the property and resell it at market value when they purchased it at less than market value. This ensures the ongoing affordability of the model, and that affordability is passed on to future purchasers."
