Mortgage and home buying tips and Insights

When you’re deciding where to live there are lots of things to consider. Some of it’s rational, but lots of it will be emotional. If you’re a couple buying together you’ll probably have differing priorities, so finding a middle ground can be a fantastic lesson in compromise. You’ll need to consider how you want to live and how long you’re planning to stay. Do you want to be close to friends and fun places to eat out? When it comes to commuting, how far is too far? If you have kids or are planning them, are the schools and community to your liking?

It really is true that it’s better to buy the worst house in a good street – and it’s not just because the value of your house will go up. You may not realise just how much impact your community can have on you – horrible neighbours can make life hell.

Amazing what a difference a bit of sun can do for even the most run-down property. Make sure you double-check the aspect of any house, so you know where it gets the sun and what rooms will be the warmest.

Get your sleuthing hat on so you know everything about the house before you buy. Talk to neighbours, run Google searches on the house, street and area, check at night for street lighting and noise. Questions to ask yourself are:

• What is the neighbourhood like?
• Is it quiet at night?
• Is there much crime in the area?
• What happens when it rains?
• Are neighbours aware of any future development activity?

With leasehold you own the building but you don’t own the land. Banks will generally only lend up to 65% on leasehold property.

There are typically two types of leasehold. Church and Maori leasehold tends to be lower risk and better quality because they’ve been around longer and are more consistently priced. Commercial leasehold is riskier. Many of the inner city apartments that have developed recently have used low “honeymoon” lease costs that jump up as much as 100% at the next ground rent review date.

Your key considerations are how long it is until the next review and how much will they increase?

Leasehold can be really useful in some cases. It allows people to live in areas and in a quality of building they otherwise could not afford. The most important thing is making sure that it’s priced properly.

This is where you own the whole lot. Long-term, the value of your property will be in the land.

This was popular in the 70s and 80s as a cost effective way of subdividing properties. Essentially you own a share of the freehold title. The only thing to be aware of with cross-lease is that it may need sign-off from other owners before you can change the footprint of your house. Although uncommon, there could be other restrictions on the title that need to be checked out by your lawyer.

This form of ownership is common for apartments, townhouses and units. It is used to ascribe ownership within a development. You will have ownership of your unit and an undivided share in the ownership of common areas.

There will be Body Corporate fees associated with unit titles that pay for the upkeep of the common areas and services.

Usually has a roof, windows and a door. Like Playschool, only real life.

These are semi-attached and usually on a cross-lease or strata title. Banks are a little more nervous about town houses in larger developments so may restrict lending to 70%. They tend to be more favourable towards properties built in the 70s and less favourable towards anything built after 1985. Clearly, they don’t make them like they used to.

Apartments are increasingly popular with buyers because of the low entry prices, though they’re not viewed positively by lenders. This can make it much more difficult to get a mortgage on an apartment, but has also seen the price of apartments drop. Some banks are not lending on apartments at all, so it is worth talking to us first if you’re thinking of grabbing an inner city pad.

Apartments are a bit of a weird beast. Often banks won’t lend on the cheapest places at all because they’re too difficult to rent. For apartments like these, which tend to be less than 50sqm or leasehold, you’ll probably need a 40% deposit. Larger apartments with two or more bedrooms that are freehold will need 20%-30% deposit as long as you have a good stable income.

To really educate yourself on apartments, spend a night at a tired, old, cheap hotel (just take your own pillow). You’ll notice what happens to apartments that are cheaply made and not well maintained – it feels really run down, shared areas will be scruffy, views blocked by newer buildings and street noise will be very noticeable. Apartments with potential will be soundly built and mostly owner-occupied, with safe entry and exit from the building at night and great proximity to supermarkets, parks and transport.

Built with native timbers these were built pretty solid so last fairly well.

Things you should watch out for:

• Some insurers will need old wiring to be completely replaced before they’ll sign off on a replacement-cost policy. You’ll generally need this kind of policy to get your home loan so make sure you check this out before going unconditional.
• These houses often need to be re-roofed, costing around $10k and re-piled, around $15k.

This period tended to have small windows and cramped living spaces to trap in heat. You’ll often find the layout in these places are at odds with modern living, so you’ll need to move walls around. That makes them expensive do ups.

Not only are houses in this era pretty fashionable at the moment, they’re made from enduring materials and are often positioned well for sun with great indoor-outdoor flow. Asbestos was widely used in the 1960s and 70s. Asbestos is safe if you just leave it alone (kind of like a pimple). Check whether or not internal ceilings are asbestos because some lenders will restrict lending to 80%. Asbestos ceiling can be removed by specialists for around $5k.

Insulation only became compulsory in 1978, so houses built before then might not have any. Brick and tile houses will be particularly cold and have issues with mould – look for it on south-facing walls.

This is the era of dodgy building practices and the infamous “leaky building”, so it pays to be careful.

Things to look out for:

• Monolithic cladding systems (“plaster houses” and panelling)
• Lack of eaves (roof overhangs)
• No window flashings (integrated metal trim above a window that deflects water)
• Balconies integrated into the cladding system (“solid”)
• Cladding or framing touching the ground

New building codes fixed the dodgy practices of the previous decade. Enough said.

A mortgage is a big financial challenge. What a lot of people don’t realise is how important it is before you take one on, to take a look at what your life is expected to look like over the coming years, and plan your mortgage accordingly.

The good news is that mortgage products have become fairly flexible, as long as you plan around them properly. So if you’ve got plans to start a family and are reliant on two incomes, or dreaming of your OE in Spain for a year, we can help you figure out how to structure your mortgage around those plans.

We deal with lots of young professionals who are planning on starting a family, but whose large mortgage also means they rely on two incomes.

The key to starting a family is planning your finances in advance.

• You need to be able to cope on one income for up to 12 months. What will your monthly shortfall be?
• Take into account your higher living costs once your partner goes back to work – this will usually be around $1,500 extra a month.
• Put all of your savings into the mortgage using revolving credit. Aim to repay enough so that you can cover at least 12 months of income shortfall. With revolving credit you can access the funds you pay off at any time.

Provided you own more than 20% of your home, you can also put your mortgage onto interest-only for a while. This will reduce repayments to cover any shortfall.

You’ll get 12 weeks paid parental leave, and if your household is earning less than $80,000 while one of you is off work, you could be entitled to Working for Families benefits too.

With the right planning, you’ll be able to stress less about your finances so you spend your energy enjoying your new family.

We can help

• develop a personal mortgage plan specifically for you. This will help you plan your finances before starting a family. We can then review your plan every year to make sure you stay on track.
• arrange life and health insurances so that you’re well covered, but not paying too much.

Used properly, an equity release mortgage (ERM) can be fantastic for people who own property and are on a limited income.

With an ERM, you can borrow against the value of your property with no need to make repayments. The interest is added to the mortgage balance and the mortgage is repaid when you vacate the property and the home is sold.

A lifetime guarantee means you can stay in your home for the rest of your life, and a no negative equity guarantee stops the mortgage ever being more than the value of your home. In simple terms, you still own your home and no one can kick you out.

We can discuss whether or not an equity release mortgage is right for you as part of our retirement plan service.

• The amount you can borrow depends on your age (at 67 you can borrow up to 22% of the property value, at 80 35%, and at 90+ 45%).
• The mortgage has a no-negative equity guarantee so that the loan balance can never exceed the value of the property.
• Establishment fees range from $695 through to $895. There is an additional charge for a property valuation (usually about $500) that can be added to the loan. It is also compulsory to get independent legal advice, which will set you back at least $500. So total up front costs are close to $2,000.
• Fixed and floating rates are available, although we don’t recommend a fixed rate for life because of the potential cost to you if you repay the loan early.

Planning for your retirement can be tricky – it’s very difficult knowing how much you have to spend every year so that your savings last your whole life. Equity release can act as the insurance buffer for your retirement savings.

Knowing that you can access equity from your home (and that property prices appreciate) you can budget to spend your other investments in the short term. You’ll have more cash to have more fun, and then, if you live longer than you expect (always good news), you can fall back on the equity in your home.

Something else to consider if you want to grow your savings but still need regular access to your money could be Squirrel Money. Squirrel Money Investors get returns ranging up to 7.5% p.a. which is paid out monthly instead of at the end of the term. You can choose to invest into home loans, construction loans and even personal loans, and we operate a reserve fund to help protect your hard earned money against Borrower default (provided the reserve fund has sufficient funds available).

This is when being silly or forgetful with your money can come back to haunt you. Your home loan won’t be fully approved until the bank has seen your bank statements. Dishonoured direct debits or going into unarranged overdraft can make you look like a risky prospect and you could be declined.

A number of first home buyers start their hunt looking at properties (and going to auctions) well above what they can afford. Eventually they get buyer fatigue and end up buying the first thing they can, which is never a great way of approaching it.

If a place seems too good to be true, it usually is. Do some basic checks yourself before getting an inspection – look under the floor for dampness or rot and look for repairs.

A building inspection will throw up structural issues with a house but will miss the small stuff. It pays to check that everything works – heated towel rails, spa pool, dishwasher, dryer, drains, electric door to hidden lair, hot water, central heating, fans, and oven.

You will have between $1,500 and $3,000 of upfront costs when buying property. Make sure you factor this in to your budget.

Banks will approve you for more than you can reasonably afford. It is important to have a realistic budget and to plan on higher interest rates. Putting your head in the sand simply creates problems later.

If you are going to have kids, travel overseas, go back to study, or join a hippie commune – work out what that means in advance. If you need insurance, we can help with that.

If you only pay the minimum you will not get ahead and your mortgage costs will increase when rates go up.

The lowest rate may be the cheapest option, but it might not protect you from any future rate increases, and may not be the best option for your lifestyle.

Once you have a mortgage it gets harder to repay other debts. Although a hire purchase might be interest-free (and you might absolutely need it for your kitchen) at some point it needs to be repaid and will then impact on how easy it is to live with your mortgage.