Innovative Strategies for First Home Buyer

26 February, 2024: Is the quintessential “Great Australian Dream” of owning your own home feeling perpetually out of reach? Many first home buyers face the challenge of accumulating a sufficient deposit to make their dream a reality. However, FrontYa’s deposit-boosting solution are helping them overcome deposit constraints.

As property prices consistently outpace wage growth, saving for the required deposit, especially for those without access to intergenerational wealth, becomes increasingly daunting. Data from the ABS Residential Property Price Indexes and Quarterly Wage Index indicates that property prices have surged 3.6 times faster than wages over the past two decades, making deposit-saving an uphill battle for many.

The dream of homeownership remains a top priority for countless families across Australia. While government programs and incentives aim to support first home buyers, not all hard-working Australians meet the eligibility criteria, leaving them stuck in a financial limbo.

An emerging pathway to home ownership, known as shared equity, offers an alternative route to help first home buyers step onto the property ladder.

Despite its relatively recent introduction, shared equity arrangements have gained significant acceptance among lenders, opening doors for first home buyers to enter the property market. Shared equity schemes are even integrated into government first home buyer programs in various states. Private fintech firms, such as FrontYa, offer an enticing solution for those who don’t meet the stringent eligibility criteria of government schemes.

How does shared equity work?

In a shared equity arrangement, you receive a deposit boost for your property purchase. In return, your equity partner becomes entitled to a percentage of the property’s future equity.

Once you agree to this arrangement, both you, as the homebuyer, and your chosen property undergo evaluation to ensure that the equity partner sees its potential.

Key Insight: It’s crucial to understand that the deposit boost from an equity partner, like FrontYa, is not considered a debt or loan. Your lender won’t perceive it as a liability, safeguarding your financial standing. Use FrontYa’s online purchasing power calculator to gauge the impact of their deposit boost on your budget or contact FrontYa’s prequalification team.

If you’re curious about the costs associated with a shared equity partnership, visit FrontYa’s website for a detailed cost scenario. Here, you can learn how to repay the deposit boost in the future, using the equity accumulated in your property.

Advantages of Shared Equity:

  1. Full Ownership: You become the sole legal owner of the property from day one, with no shared ownership involved.
  2. Enhanced Purchasing Power: Shared equity can significantly boost your maximum purchase price and expand your borrowing capacity. This allows you to consider larger properties or live in your preferred neighbourhood.
  3. Increased Net Equity: Investing in a higher-value property may result in greater net equity, even after settling with the equity partner.

Disadvantages of Shared Equity:

  1. Larger Mortgage Commitments: Taking out a larger loan often leads to higher monthly mortgage payments compared to smaller loans. Exiting the arrangement through a cash-out refinance may further increase your future loan obligations.
  2. Market Fluctuations: Negative property market movements can complicate exiting a shared equity arrangement, especially if your exit strategy relies on property equity.
  3. Ongoing Costs: Homebuyers are typically responsible for ongoing living and maintenance costs, which are not shared with the equity partner.

For first home buyers grappling with deposit requirements, shared equity arrangements, such as those offered by FrontYa, present an appealing option.

If you’d like to explore this method further, don’t hesitate to contact us today.