The desperate first-home buyers’ guide to buying

Although it can seem like all the doors are being closed to first-home buyers in today’s market, Kylie offers some wonderful workarounds that can get you into your first home.

It’s no wonder first-home buyers are feeling the doom and gloom when it comes to stepping on to the property ladder. Most banks require a 20 per cent deposit and the average New Zealand house price is now around $600k (and Auckland $1mil). So, it’s fair to say times are a little tough.

However, there are still options out there for those who don’t have a 20 per cent deposit, so don’t give up on saving just yet! Remember, LVR rules aren’t permanent, so what might seem impossible now, might very well be possible in the near-future.

In the meantime, let’s have a look at some current options:

Build your own home

This is a great option for first-home buyers as you only need a 10 per cent deposit. Plus, if you’re building as a first-home buyer and qualify for the Housing NZ HomeStart Grant, then the grant is effectively doubled to $2000 per year of membership in the scheme (up to $10,000 for five years for each member). (Note: There is a maximum income threshold and also a maximum house price of $550k in the Wellington region.) This means that in most cases a couple would be given $20,000 to put towards their build.

Family assistance

There are several ways a family member(s) can help you get into your first home:

1)    Gift the deposit (some banks will still require you to have saved at least five per cent of genuine savings).

2)    Allow their house to be used as security. In this case, no deposit is required but you will need to have both good income and credit history.

3)    Purchase the property jointly with another family member.

4)    A family member buys the house as an investment, with the children to live in, and pays the costs. Once equity/credit allows, the children can purchase the property.

Welcome Home Loan

The “Welcome Home Loan” is a government-backed loan aimed at getting middle income New Zealanders into their first home without needing a large deposit. Just a 10 per cent deposit is required and this can be gifted. There is a set criteria with maximum house price and income caps, as well as a one per cent fee.

Non-banks

There are 90-per-cent lend options with non-banks. This could be an option for those who don’t qualify for the Welcome Home Loan (whether this is due to high income or they are wishing to purchase a property that is higher than the maximum house price cap with Welcome Home loans). However, you will pay a higher interest rate with a non-bank. They will take 80 per cent of the loan and spread the repayments over 30 years, with the remaining 10 per cent on a high interest rate over a term of, say, 10 years. Once you’ve obtained 80 per cent equity in your home you do still have the option to move to a bank.

Some banks are doing “live deals” between 80 and 90 per cent for their existing clients. This is dependent on the funding available on the day, and is very limited. There is less certainty around this lending in the current environment.

The above is class advice, however if you would like specific property advice please contact one of our Mortgage brokers.  For further information click here for our First Home Buyer’s Guide

Considering building? Here are your financing options

With our current housing shortage, building your own dream home can look mighty appealing. But what will your bank think and is there any government assistance?

If you are considering building there are several financing options available. We’ll get to these shortly, but firstly a note about LVRs and the HomeStart Grant.

The Reserve Bank LVR rules don’t apply to those building a new home. This exemption applies to both owner-occupied and residential property investors. So this is a great option for those who don’t have the required 40 per cent deposit for an existing property but wish to add to their property investment portfolio.

If you are a first-home buyer and qualify for the Housing NZ HomeStart Grant, then the grant is effectively doubled to $2000 per year of membership in the scheme, of up to $10,000 for five years for each member if you are building.

So, all this considered, here are your financing options (and remember that each bank treats construction loans slightly differently): 

Fixed-Price Contract

Your builder provides a single, fixed price to complete the build. The contract is “all inclusive”. Mortgage repayments need to be paid while the build is being completed, so if you are renting during this process you’ll need to be able to service both your weekly rent and the mounting repayments on the new build. Banks will generally lend between 80 and 90 per cent on the cost of the project.

A Turn-Key Loan (Land and Build Packages)

In this case, the property (land and house) is purchased once completed. A contract is generally entered into before building starts and a deposit paid at this stage. The ownership of the property is transferred from the building developer to you once the house is built.

These can be a little more expensive than the fixed-price contract option, however, there are no mortgage repayments required during the build process. Banks will lend up to 90 per cent of the price of a turn-key project.

Purchasing Land

In the current market, most banks will lend 80 per cent against a piece of land, assuming it is zoned residential and has the services—power, water, sewerage— available. Most banks will only lend 80% if building will commence on the land within 12 months.

Build Yourself

If you are a tradie and are building the home yourself or you are project managing the build, banks will lend between 50 and 80 per cent of the build costs.

There you have it. If you’d like to talk through your dream home with us, we might not be so helpful when it comes to choosing curtain patterns but we can certainly help get the cash so you can order the right curtains.

Two Top Tips for Buying Your First Home

Lance Shearman shares two valuable lessons from the Boy Scouts and childbirth for improving your chances in buying your first home. 

If I learnt anything from the Boy Scouts, it was to be prepared (Disclaimer: I was never actually a Boy Scout, however, they still have great words to live by!). Whether for an exam, presentation, sporting event, or if you have a house full of kids to send off in all directions the following morning, you know it is great to be organised the night before. So, when you are looking to purchase a property there is no difference.

1) Be prepared!

People who are successful in buying homes typically have their ducks in a row, finance confirmed, and solicitor locked in. They also understand that the GV may not be as helpful a guide as researching the prices of comparable properties that have recently sold. You do this and you have given yourself the best shot at owning your first home. Plus, this will also help with the next point.

2) Relax … you are supposed to be stressed!

Whoever told you that purchasing your first home would be an amazing experience is possibly the same person who will tell you that childbirth is a breeze (Disclaimer: I have never given birth, but it does look painful). Instead, you should worry (to some degree) and you should stress (at some level) and the sooner you come to peace with that the more you will relax about the highs and lows of property acquisition.

You are about to spend a whole lot of cash on something very important to you, and you will put faith in a lot of people you have possibly never met before. Buying your first home is not something you do every day. It is a big deal and important. Experts who do this every day are integral in keeping a lid on the stress levels and guiding you through step-by-step.

3) This final tip is for free

Advice from family and friends that was once helpful advice may not be so helpful today with bank policies in constant change and houses selling so fast (and often for higher than expected prices). So, do listen respectfully to the advice of friends and family, but then just confirm it with an expert. The advice might be spot on, however, it is always helpful to check with those who work in this space every day.

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.