It can take a long time to save for a house deposit. For some, they just don’t want to wait to reach the 20% deposit mark to get a good interest rate, nor do they want to buy now with a low deposit and be subject to high interest rates (low equity loan).

What is You Own shared home ownership?

One solution could be buying with someone else, like You Own. They can provide a deposit of up to 15%, which means you can get standard interest rates with as little as a 5% deposit.

There are some conditions you must meet, such as buying a certain type of property and having a certain level income. The type of properties allowed is not a restrictive list.

Whatever percentage You Own contribute towards the property that is their equity percentage. If they contribute 15% they own 15% of the property. So any increase or decrease in house price they get a 15% increase or decrease in equity, and you get 85%.

In addition to giving up some equity, you also pay fees of 5.95% of You Own’s equity per year. Let’s say they own $150,000 of the property, you would pay $8,925 for that years fees. If their equity increases to $200,000, you would pay $11,900 in fees. There is also an initial set up fee of $1,100. It is up to you decide if the fees and equity sacrifice are worth it.

You are given the option to buy out You Own’s share of ownership at any point from year five should you wish. The thinking is that mortgage paydown and property growth would allow you to have enough equity to buy them out.

You can find more information on the You Own website here.

The offering is sold as helping you. There is a lot of language on their website around helping kiwis and making kiwis happy and fulfilling dreams. But at the end of the day, they are a business. They are selling their services. They are of course helping themselves too. So with any financial decision you need to analyse the pros and cons and delve into what it actually costs.

Thankfully, I have a calculator for this product that you can punch your own numbers into to see if you are better off buying with a partner on a lower interest rate, or on your own with a higher interest rate.

We will run through a few examples using the aforementioned calculator.

Examples of You Own shared home ownership

We will assume you buy a $800,000 property with a 20% deposit ($160,000). 15% of the house purchase ($120,000) is bought by You Own and just 5% by you ($40,000).

We will assume a 30 year mortgage at a long term average rate of 5%. House price inflation of 3%

We will assume you buy out You Own’s equity of $152,000 in year 9 by getting an additional $152,000 mortgage. By that point you should have paid down the mortgage enough and had an increase in property value to ensure the bank will allow more borrowing.

You can actually see your equity decrease in year 9. This is because the amount you buy out You Own for is more than the mortgage amount you have paid down to date. But at least now, moving forward, you pocket 100% of house price gains rather than 85%.

You can see the fees over 9 years do add up. Around $65,000 in this example.

You should really look at the equity after fees as that is the money in your pocket so to speak.

In isolation it looks pretty good. $1.8 million in equity after 30 years.

But what good is the information if there is nothing to compare it to?

Using the calculator provided, you can compare buying with You Own to the alternative option. Using your 5% deposit to buy a home with a low equity mortgage. Do note, that some people may not be eligible for this option. Borrowing 95% of a property’s value tends to require a significant income or ability to service the mortgage. Shared ownership may be the only option for some people with an income that is not high enough or who don’t want to wait to save up the required 20% deposit. However, for those with a high enough income to get a 5% deposit, we can compare to that option.

Low equity home loans tend to cost a lot more in mortgage interest than you would get with the shared ownership 20% deposit option. To get an idea of how much extra, have a look here. All banks will differ, but this is in the ballpark.

So with the same assumptions as earlier, except a mortgage interest rate 6.5% until you get to 20% equity, we will take a look at buying by yourself with a 5% deposit.

After 30 years of course it’s the same equity. A paid for house is a paid for house after all. And in both instances you have 100% equity. The path getting there is just different.

Even with a higher mortgage rate, owning by yourself better for most of the time because you own 100% of the property rather than 85%. Even when you buy You Own out of their ownership in year 9 it takes most of the time thereafter to catch up due to higher mortgage payments because your mortgage with You Own would be $685,000 and by yourself would be $660,000 at year 9. Mortgage payments with You Own therefore being a higher amount each year to catch up at year 30 when fully paid off.

Equity is only one part of the poicture though. Cashflow is also essential. For example, you could spend $1 million or $800,000 to get to an equity level of $1,9 million. The latter would be much better. So you can’t look at equity in isolation.

So how much does each scenario cost in fees and mortgage payments with the assumptions used?

Pretty close over 30 years. About $10,000 less with buying on your own. All the way up to year 25, it cots less buying with You Own.

Now we can look at a comparison between the two options including both the equity gains and the cashflow used. This is the result that matters the most.

Pretty close over 28 years plus.

Interestingly, buying with a partner (shared ownership) better in the first 8 years here. The difference getting less and less though as you would no longer have a low equity mortgage when buying on your own from year 5.

Then the big jump in year 9 when you buy out You Own and take on more mortgage for more long term equity. In the short term, that then means you are much better off owning your own home for many years, until the higher annual mortgage payments for the shared ownership buyer catch up.

In this instance, over 30 years the difference between the two options fairly minimal. However, not many people own their homes for 30 years.

If you are deciding between the two options it is essential to determine how long you expect to own the home for and whether or not you will buy out You own. If you do buy them out you should be in it for the very long haul.

If you intend to sell in less than 7 years and not buy them out, then maybe it could work well for you.

What difference would a change in house price assumptions make? Let’s say instead of 3% a year, house prices increase by 5%.

Much worse off with shared ownership now. With higher house price gains, a lot more money going towards You Own. This time only the first 3 years being better off with shared ownership.

Instead of changing the rate of house price gains, what if we reduce the mortgage term from 30 years to 20 years?

Better off with shared ownership for years 13 to 24, but worse off for years 1-12 and 25-30.

What if we change the deposit amount amount from 5% to 10%?

Worse off from the original assumptions for the first 8 years, better off for years 9 to 25, and much the same from years 26 onward.

Now we will assume you buy out You Own in year 5 rather than year 9.

Worse off for the first 8 years, and much better off thereafter. Even better off than going alone on a low equity mortgage from year 25.

Whereas buying out later in say year 13, will see you better off for the first 12 years, but much worse off from year 13.

Finally, if you don’t buy out You Own at all:

Much worse off.

There are a lot of variations you can make based on your circumstances. So have a play around with the variables.

The key when going into shared home ownership or not is to consider the costs, how long you hope to hold the property for and what your buy out plan is.

Because each option is better than the other depending on your answers to the above.

There is another option of waiting to save up a 20% deposit and forgo the low equity mortgage or shared ownership. You would have to run your own numbers if it is better to wait or not. This calculator doesn’t allow for this option because there are so many variables around your income and spending prior to and after having a mortgage. But you can still run your own analysis of how quickly you think you may save for a 20% deposit, how much you will save not buying now with a higher interest rate, and making a best guess around how much house prices may gain.

Shared ownership models thrive on rushing people onto the property market by using scare tactics around how much house prices will increase by and you may miss out by not buying now. Sure, you might. But you might not either. As you saw today, there are big costs to buying under shared ownership.

In many instances, it was actually better to buy own your own with a higher mortgage interest rate, than to share equity with someone else. A lot depending on your timeframe before selling, when you buy out You Own, how much deposit you make, house price gains, and length of the mortgage.

Everyone’s situation is personal and your mileage will vary.

If you need help with any financial decisions , then get in touch today.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here