One thing I have been thinking a lot about lately is just how significantly the housing market in New Zealand has changed in the last year or so. And for the better in my humble opinion…
The Reserve Bank and politicians were still concerned about rampant property prices and general housing affordability. Not only was property price inflation in Auckland still extremely high, but smaller regions such as Hamilton and Tauranga were also starting to see similar property price growth.
Up until this time, first home buyers were still hugely disadvantaged. Most homes were selling at auction, and most auction houses were packed full of investors prepared to pay extraordinary sums for residential real estate. It was heartbreaking at times to see my customers spending large amounts of their hard earned deposits on build reports and valuations, only to find out that they had been outbid for their desired property on auction day. For some first home buyers it must have felt like ground hog day in their search for their first home.
and the property market has become a very different beast altogether... property prices seem to have stabilised or cooled in many Auckland areas, and for once we are starting to see actual asking prices on many Auckland property listings! Who would have believed it a year or so ago!
Housing affordability has become a hugely political hot potato in recent times and will be for some time to come. With recent regulatory tightening effecting investors however, it’s a huge relief to see that the market is now just starting to swing towards the first home buyers favour.
In recent months I think many first home buyers have started to realise that there is now a real opportunity out there. We are seeing some of our customers in a strong position to take advantage of these market changes. In some cases however, applicants just need a little more time to tweak their financial position to obtain the best approval from the banks.
So with all this in mind, I just wanted to share my personal top 5 tips for first home buyers:
This is when being silly or forgetful with your money can hurt 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.
Credit cards can seem really appealing and most providers offer incentives such as reward points or 0% on purchases etc to tempt you in. The important thing to remember however is that the higher your limit, the less you will be able to borrow, regardless of whether your card has a $0 balance or not. A card with a limit of $5k could reduce your borrowing potential by around $20k. A $20k limit could reduce your borrowing ability by up to $80k or more !
So, you’re living at home paying $100pw board to Mum and Dad? That’s great, but most banks will want to see some evidence that you can afford that new mortgage repayment of $600 per week. Demonstrating that you can save an extra $500pw (or more) on top of your board will give the bank some comfort that they won’t be putting you in to financial hardship should you take on that $500,000 loan.
Banks still have some capacity to lend to you if you don’t have a 20% deposit. (Just remember that your interest rate may be a little higher). When you don’t have a 20% deposit however, the banks will generally want to know you have genuinely saved at least 5% of this yourself. In the banking world this is called “hurt” money. Showing that you have contributed some of your own money to the purchase gives some comfort to the bank that you are personally invested in ensuring that your loan repayments will be made.
Great, that you have saved $60k for that 10% deposit on your first home. Debts such as large car loans or personal loans can start to impact your application in two ways however. Firstly, these types of loans tend to be short term and the repayments on these can really start to impact on the general affordability of your application. Secondly, the banks will want to assess your overall Statement of Position. Whilst you may have saved $60k for your deposit. If you have a $50k car loan also, this suggests you have an overall equity position of just $10k.
I have been at Squirrel now for the best part of two months and it really is awesome to be working with such a fun, engaged and dynamic team. A team that absolutely loves helping our first home buyers. Sure, we love helping our investors too. But one theme in common was just how great it is to share in the excitement of helping our customers into their first home.
Hopefully these tips give any first home buyers out there some inspiration to start looking at what options are available. If you do need some further advice or are looking for the best approval from the banks, I just so happen to know a pretty cool bunch of Squirrels who would love to help.