Why taking in flatmates could be the key for first home buyers

People exchanging house key
Flatmate income can boost borrowing power and help pay off a mortgage faster. Photo credit: Getty.

Taking in flatmates could help first-home buyers get onto the property ladder and move forward faster once they do, experts say.

As flatmate income can be assessed as part of a mortgage application, it can be used to increase borrowing capacity. Once the home is purchased, the income can be used to pay off the mortgage faster, creating opportunities to move up.

According to Campbell Hastie of Hastie Mortgages, for those who have at least 20 percent deposit, lenders will usually consider flatmate income as part of the borrowing calculation. In some cases, applicants could borrow up to $50,000 more.

"Banks will generally only allow one-to-two flatmates in the calculation, [of] $150 to $200 per week per flatmate, equating to another $30K to $50K of loan," Hastie explained.

For lenders to consider flatmate income, proof must be provided.

"To have any shot at getting the bank to consider flatmate income, you need to have a letter from the prospective flatmates," Hastie said.

Homebuyers should be realistic about the number of flatmates the home will comfortably allow. For example, a two-bedroom home won't accommodate three flatmates.

"Bank lending calculations are [based] on standard bedrooms within the home, rather than the number of people (or incomes) crammed in them," Hastie added.

If a deposit is less than 20 percent, personal income must stack up against the proposed repayments. However, including flatmate income in the application may help.

"It probably won't be included in the affordability calculation but can assist with the overall impression," Hastie added.

Other options that could help homebuyers get into the market are to buy a home jointly or have their parents act as guarantors on the loan.

Kiwi property investor Graeme Fowler, said that flatmates can help homeowners pay off their property faster and teaches them about "leverage".  Leverage uses other peoples' time or money - for example, borrowing from a bank - to achieve financial gain.

"You put in a smaller amount of money than the bank does which helps you buy something that you would not have been able to do so soon on your own," Fowler explained. 

"They can then increase their borrowing power, creating options to move up to another property, or borrow against their existing property," Fowler added.

While there's no "silver bullet" to home ownership, income from flatmates can make managing finances easier and may allow homebuyers to borrow more.  But for those who feel uncomfortable sharing their new digs with strangers, there are other options.

"Less short-term debt and more deposit coupled with good financial habits carries just as much weight," Hastie added.

Depending on personal financial situation and savings, banks may require debt to be repaid first or other conditions to be met before a loan is approved.