Velocity financial

Am I Ready to Buy for the First Time? Or Again?

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There is one constant in the ever-changing world of banking: the confusion as to what people can and can’t afford. Lance explores the murky waters of why some banks say yes and some say no.

 

Yeah? Nah.

 

I often find myself sitting with people who believed they were in no position to purchase but could and, conversely, people who believed they could but, at that time, could not. Beyond this, they may have been sabotaging their plans by putting together a strategy that was actually taking them even further away from their house-buying goal.

 

To help clear up some of the confusion, there are really only three things a bank is interested in:

1. Deposit (or equity)

2. Income

3. Debt

 

A scenario I have come across often is when people have strong income, some debt, but a low deposit. They believe their biggest hurdle is the debt, so set about reducing this. The truth is, while they have some debt, their earnings are at a level that the debt is easily managed, even with a mortgage. They need to increase their deposit, but unfortunately all their extra cash is being channelled inefficiently towards debt repayment and, so, unnecessarily delaying their timeframe for purchase.

 

To all those colour-coded Excel spread sheet lovers …

 

There can be times when people have been up all hours looking at properties or going to open homes for months when, unfortunately, they had no ability to purchase at their target price point. This can be frustrating as numbers can be based on correct “true-to-life” calculations. However, banks have their own rules of basic math.

 

When a bank calculates what we can afford to borrow, they use a far higher interest rate (to mitigate fluctuations), and they have a minimum average spend for cost of living for each scenario presented e.g. two adults, one child vs. one adult, no children etc. Furthermore, because each bank perceives risks in different ways, they each calculate a household’s scenario differently. They’ll give greater or less importance to things like the number of vehicles you own and whether child support is organised formally through the IRD, as well as a few other quirks.

 

“If I could turn back time.” — Cher

Time is our gift to you. Tell us your scenario, what you are hoping to do, and when you are hoping to do it. Let us sit down and come up with a clear strategy based on what you are truly able to do.

 

If it is not today, let us help you journey towards that “yes” sooner rather than later. Let’s unpack your plans beyond this next purchase and consider the ramifications of each step. Let’s reduce the uncertainty.

 

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.

Hope for First-Home Buyers?

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By Stevie Waring

As the newest member of Velocity Financial (I started with the company in April), I

quickly realised that I was the only person in the office who isn’t a homeowner. I

soon became determined to change that.

My partner and I had talked about home ownership a lot over the past year but

viewed it as something that could only occur in the future—maybe one or two

years away at the earliest.

We watched as the news reported rapid increases in house prices in New

Zealand and Wellington. We were faced with an epidemic. Who were we but

mere mortals? We couldn’t fight an epidemic. So we made peace with the ever

lengthening time between now and home ownership.

Coincidently, I had organised to come along to Lance’s Home Buyers Club that he

runs fortnightly at the office to see what it involved and, just mere days before

this, my partner and I found out that we were getting kicked out of our rental

property and we needed to move again this year.

At the Home Buyers Club it quickly became clear that things weren’t as grim as

we had once thought. There were still houses on the market, in our price range,

and the overdraft we ran into during our first years of university wouldn’t put us

on the bank’s black list after all. What a revelation!

What was to follow in the next four months was like your first relationship: an

emotional rollercoaster filled with checking your emails and TradeMe

obsessively—hoping that cute little three bedroom with insulation likes you as

much as you like it.

I hope our story can bring hope to those with seemingly far off home ownership

dreams. As time continues to go by and your friends and family are telling you

that the next one will be the one, it can be really easy to put pressure on yourself.

However, here are three tips that helped us stay sane and optimistic along the

way:

1. Take a Break

You will not miss out on a once-in-a-lifetime opportunity because you spent one

restful Sunday eating brunch and lying in the sun, I promise.

2. Don’t Shop for a Bargain

They don’t really exist. And hunting for these unicorns just takes up your energy

and time.

3. Make it a Team Sport

Build an amazing team of professionals around you who will reduce your stress

and encourage you to persevere during this process.

How do tiny houses stack up?

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By Stevie Waring

 

Is the tiny house the answer for the struggling first-home buyer? Definitely “yes” for some; definitely “no” for others.

 

In recent years, it has become more and more difficult to be a first-home buyer in New Zealand and renting has become more expensive in many parts of the country.

 

Naturally, many people have come up with alternative solutions. Some students have chosen the “go big” alternative where you live with 10 or more people in the hope of splitting costs. Or you may want a waterfront property without the price tag? Enter the houseboat life. Or you may be a young person, family or couple that wants a home but have no idea how to fund it.

 

This is exactly where the tiny home revolution has taken off. The idea being that you can live a minimalist lifestyle in a carefully designed bespoke small space that is both efficient in space and cost.

 

Apart from the creativity and innovation of it, the biggest bonus of a tiny house is the price. You essentially pay for a standard base plan, and then you pay per room after that. It is totally customisable. It allows you to be creative and unique with your space while giving you the financial freedom to spend your money on higher quality items that may have been unavailable to you with a regular home, such as full insulation, solar panels or beautiful hardwood floors, for example.

 

So how do you pay for it?

 

In Wellington, the average house price is $639,112 (as of June 2018, QV.co.nz) but basic tiny houses are less than $100,000. That’s a no-brainer, right?

 

The short answer is that you can do it, but a bank won’t necessarily give you a mortgage for it.

 

If you see a tiny home in your future, here are a few things to consider:

·         Where will you put it?

o   If you’re planning to buy land, you may be able to use your KiwiSaver.

o   If you have friends or family with some land, it’s probably easiest to put it there.

·         Do you or family have an existing mortgage?

o   If you or your family have existing equity in your property, you may be able to refinance it to access that cash to put towards your new tiny home.

 

Long story short: If you are looking to lead a simpler, more efficient lifestyle that is cheaper in the long-term, then this may well be the solution for you.

 

If you are looking for an alternative to buying a first home because you may not have the funds for a deposit yet, this may not be the solution for you.

 

As with everyone situation, there is often more than one answer, so give us a ring and we can talk through your options—big or small.

Should I Refinance my Home Loan?

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By Kylie Cassidy and Brendon Ojala

 

With the banks competing for new customers and offering cash incentives, the temptation to switch banks can be rife. Brendon and Kylie ask if the switch is really worth it.

 

The first thing to note if you’re considering refinancing is that you should consider much more than just interest rates. The actual costs can vary depending on whether you have existing loans that are still fixed. There are also the non-monetary factors like finding a bank that better suits your needs or has a superior service level. These are all things to consider.

 

Turning to your mortgage broker for advice should be your first step as they can help you work out the pros and cons, in the meantime, here are four factors to get you thinking:

 

1. Does the bank suit my needs?

 

Consider the bank’s products and whether they will suit your current needs. Do you want to be able to make lump sum payments without penalty? Do you want a large revolving credit account? Or perhaps an offset product where you can use the funds across savings accounts to offset the interest on your mortgage?

 

2. Don’t get hung up on lower interest rates

 

Lower interest rates aren’t the be-all-and-end all, and often some smart budgeting coupled with the right mortgage structure can give you more than then a 0.2 per cent decrease in interest rates. We will of course, work hard to get a competitive rate from the bank, but it’s in this finer detail where your mortgage broker can add real value.

 

3. Making the switch can be messy

 

If you’re offered a cash incentive to move banks, chances are you’ll need to move your banking across to them. This means changing your APs, direct debits, salary and so on. Some banks do offer a “switching service” to make the process easier, but you may need to keep your existing account open with some cash in it, to cover any repayments or direct debits you may have forgotten about.

 

4. Costs of switching

 

Below are some costs to consider:

 

·         Potential break costs at your current bank (anywhere from zero to tens of thousands!)

·         Lawyers fees (approx. $1000-$1500)

·         Cash contribution claw backs (if your current bank offered you a cash contribution, if you move banks within a certain time frame—between two and four years—they reserve the right to ask for this cash back.

·         Discharge fees ($100-$150)

 

The new bank may offer you some cash to offset the above costs, however, it’s important to consider all of the above. The “best bank” offering the lowest rates changes all the time, so it’s important to consider your needs long term. 

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Kylie Cassidy and Brendon Ojala are Registered Financial Advisers 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.

A recipe for success ... the Velocity way

Dai argues that financial success is much the same as success in the kitchen: follow the steps and the cake is bound to rise.

 

Whether it’s cooking for friends and family or simply throwing something together for myself, from a young age, I’ve always been a keen cook. Even aged 14, I cooked for the entire school camp and that was the start of my cooking journey.

From then, I’ve gone on to work in the hospitality industry and even went on a cooking reality TV show! So why am I talking about food?

Believe it or not, working in finance and, in particular, dealing in the lending space is a bit like cooking and following a recipe. You have to be organised, there may be variables that can affect the outcome, it’s (sometimes) about pleasing others, and, at the end of the day, it’s about doing something that makes you feel good.

I’ve worked in the banking industry for over 10 years, most of it in the retail space. Then I started my own business in the food industry (which I still own), and now I have come back to working in finance again. What I have learnt over the years is that in everything we do, there is a process and system and, like a recipe, it’s there for a reason. It helps keep us on track and, if you follow the recipe correctly (without too much deviation), you can achieve great results where it’s a win/win for everyone.

Like a good recipe, the less steps involved the easier it is to get the desired outcome. Here at Velocity Financial, we have our own recipe for success. It’s a simple four-step process and it goes a little something like this:

 

1. Establish trust

First, we’ll have a chat and arrange a meeting with you. We’ll get an understanding of what makes you tick and what your goals are. We’ll also give you an understanding of what we do and how we work. The main goal at this stage is to establish a connection with you and ensure we are on the same page.

 

2. Needs analysis

Essentially, this is the application process. We will gather information that is relevant to the scope of your application and your financial goals. We identify any risks that you could potentially face and we ensure that all the necessary documents are collated, following up on anything that is missing. It’s also important that you, as the client, provide us with accurate information so we can recommend the right solutions for you. 

 

3. Solution

 We present to you our recommendations and confirm that our recommendations meet your needs. This is also where you can make any changes if needed.

 

4. Help to buy (implementation)

This is the fun part. Now that we have a successful application, we can lock that in and get closer to your financial goal—be it buying your first home, investment property or putting in place some personal protection for you and your family.

Yes, this can be a stressful time, but we work alongside you every step and you’ll also have the help of other professionals such as solicitors, accountants and real estate agents.

So, there you have it. If we get these four steps right then we’re on track for a successful outcome for you (and us).

Velocity Financial have been operating for over 15 years and we have a wealth of knowledge spread amongst our brokers who also come from an array of backgrounds.

The main difference that I see with working for a mortgage brokering company compared to working for a bank is that we can offer more than one solution to our clients. This means that we can speak to several lenders on your behalf and help you get the right results. And like a great recipe, we keep doing what works and we make improvements until we get it right. Trust us, we know what we’re doing.

For further information on how we can help you achieve your financial goals get in touch with any one of our trusted brokers.