How on earth does a first-home buyer get a foot on the ladder in today’s housing market? Brendon sifts through the media hype and sales frenzies to provide some helpful steps forward.
I was watching a TV interview recently with Minister of Finance Bill English (as you do!). He was asked what advice he would give to first-home buyers (the question was aimed at the Auckland market). His advice was that first-home buyers should have patience.
He said, “There are some risks with taking out a mortgage that stretches a two-income family right now.”
He was then pushed further: “So people shouldn’t buy right now?.”
And, with what I detected to be a hidden grin on his face, he suggested that buyers “have to make their own decisions.”
Furthermore he said, “Our counsel is to have patience right now, supply is coming. It is likely that prices will flatten and maybe even drop back a bit.”
So there you have it, advise for first-home buyers.
If I were a first-home buyer I’m not sure how I would feel about that advice. Sure, supply may be coming but arguably nowhere near enough and nowhere near fast enough. And if I’ve been saving for a deposit for many years and was faced with house inflation of ten per cent per annum, I know for sure what I would feel about that advice.
Where I know he is correct is in noting that there are risks in taking out big mortgages that you can only just afford now, particularly with record low interest rates that are sure to rise at some point in the future.
However, here are a few of my tips for first-home buyers. I know the Wellington market better than Auckland, so these comments are particularly aimed at the capital. However, I would assume most of this is transferable as well.
I’ll start by saying that it is an extremely difficult time to buy a house in a major city in New Zealand right now, and I understand why many people give up and believe they are never going to be able to afford a house. So you do need to look at your own situation and the market to make a decision. Here are your options:
- If you think prices will continue to increase in the foreseeable future, you really do need to get in;
- If you think a correction is coming, then perhaps hold off a bit.
If you have decided now is the time … read on, these tips are for you!
1) Be Aggressive: If you want to purchase a property now you do need to be aggressive. I just don’t see anybody being successful by sniffing around trying to get a bargain. At best they are getting a fair price, however, people are generally paying top dollar to secure a property right now. There is a supply and demand issue in Wellington right now. Real estate agents are quoting the total number of listings in the Wellington area at under 400 properties. Typically, for this time of year, that is around the 1000 mark. So, there is almost two-thirds less stock than is normal.
2) Be Cautious: If I owned a property that had “some problems” I would be putting my house on the market now. So, if you are a desperate home-buyer, make sure you are not buying a liability. It is easy not to do all your house checks in a frenzied market. However, I would advise you to proceed with caution when doing your property checks.
3) Avoid Finance Clauses: You do need to get yourself in a position to make cash offers on property. It is almost invariable that the competition will be making cash offers as well, so be aware of that. This of course is all redundant when it comes to an auction … but particular relevant for tenders or deadline marketing.
However, if you have been pre-approved by a bank with a 10% deposit, the bank will require a “Registered Valuation” which puts you in a significant dilemma. Do you get a valuation before making an offer and spend $700 on that or do you make an offer conditional on valuation, which could potentially be less likely to succeed? Tough call!
If you want to buy a house via negotiation, take advantage of that. Make an offer quickly. With this form of purchase, speed is arguably more important than a “clean offer”. If your offer is successful, you then have bought some time to get your conditions sorted out.
4) Talk to Your Landlord: If you are renting and you like the house you are living in, why don’t you ask your landlord if they are interested in selling it to you? If they are, this can take away the pressure of competition. Historically, you may have done this to get a bargain but even if you can get a fair price or even pay an aggressive price, it still means that you are in the market.
5) Consider Building. If you are in that $400,000 plus range, you could consider building. Organising finance is similar for a build deal; so don’t let this stop you investigating this option. It may mean, however, that you are living in an area further out of town i.e. in Wellington city flat land is in short supply (to be honest, all land is in short supply) and I would suggest that buying a flat section is going to be a whole lot cheaper in terms of the build than buying a section on a hill.
So … apologies folks, there are no magic bullets here. But hopefully I’ve given you some food for thought for navigating this hot market.
Velocity is happy to help you through the process so do keep in touch.
Brendon 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.