Buying a house has never seemed more out of reach for New Zealanders, especially those living in Auckland. Yet with the nation-wide initiatives now available to help first home buyers into their own homes, some people will be closer to their goal of home ownership than they realise, say BNZ mobile mortgage managers Susie Signal and Sam Stepney.
There are also measures would-be home owners can take to strengthen their borrowing power, they say.
Here, we ask Susie and Sam to share their top tips on what schemes and grants you might be eligible for to help you into your first home. We also ask how you can maximise your borrowing power and what you can do to pay off your mortgage more quickly:
What support is out there for first-home buyers
For a start, you don't always need a 20 per cent deposit, Susie says.
"Some banks have relaxed their lending rules a little and will lend on a smaller deposit than 20 per cent. Your bank will request a property valuation though (which will cost from around $550) and you may also be charged a little more in fees."
The Welcome Home Loan scheme allows you to get a mortgage with a 10 per cent deposit. Welcome Home Loans are issued by selected banks and lenders and underwritten by Housing New Zealand.
To be eligible your total annual income must be under $85,000 for one person and under $130,000 for two or more people. There is also a housing price cap.
The scheme is designed for first home buyers, but if you've owned a home before and are in a similar position to a typical first home buyer, you might qualify.
And lastly, if you've been a member of KiwiSaver for three years or more you can withdraw your KiwiSaver savings to use towards your first home.
The three years doesn't have to have been one solid block of time, so if you've had periods where you weren't contributing you can still be eligible.
Those who've owned a home before can qualify for the same benefits as first home buyers. This opportunity for "second chance home owners" used to come with an income cap but that was lifted in 2016.
There are restrictions on the value of your assets though - they need to be worth less than the house price cap for your region, and cash realisable assets (assets that can be converted into cash in a short time) can only be worth up to 20 per cent of the housing cap in your area. (For Aucklanders, that means up to $120,000.)
KiwiSaver members may also be eligible for a KiwiSaver HomeStart grant of up to $5000 per person for an older or existing property or $10,000 per person for a new build. The income criteria is the same as it is for the Welcome Home Loan criteria (see above).
How to strengthen your borrowing power
Reducing your debt can make more of a difference than you realise to how much a bank will be prepared to lend you, Susie and Sam both advise.
Many of us have credit cards or might be paying off a car or big-purchase item for the house.
"For every $1000 you owe, that's roughly $10,000 less you can potentially borrow," says Sam.
"Even if your credit card limit is only $2000 and your card is not maxed out, it's your credit card limit that's counted as the debt – so for a $2000 limit that's potentially $20,000 you can't borrow."
Other good things to know
How we got into our first home - one young Auckland couple shares their story
Cassie Arauzo and Myron Simpson are a young couple from Auckland who bought their first home earlier this year. They are engaged to be married and have one daughter, Alexia.
Describe how you went about finding and buying your home.
We started with a mortgage broker and we had so many questions that our first meeting was two or three hours. We also took some time reading up online and any brochures we were given. We needed to learn, for example, what a LIM report was, the different types of property you can buy (leasehold, free-hold, cross lease) and why it was important to get a builders report.
While in that process we also started browsing for houses online – getting a feel for how much they cost and what you could get for your money. I'm not going to lie, looking for a house was almost like a full time job. Going to viewings took up all of our weekends and at times I felt impatient not finding what I wanted for what I could afford. I became so fixated on one house that I said I was prepared to commute two hours, and another house we liked we were outbid at the auction.
After about nine months of looking we needed a break so we stopped making it a mission and just waited until the right one came up.
In the end, it was Myron's uncle who found our house. He had driven past this house every day on his way to work and one day noticed a tiny 'for sale' sign up outside it. He rang Myron.
Is it your dream house?
Myron loved it straight away. I needed a little convincing... it needed a lot of love! The thing that got me over the line was the location – it was opposite a reserve and walking distance to a marina. I felt it was a nice place to raise a family and it felt right in my gut. The other thing that we really liked about it was that it was free-hold so we would own the land and we could even subdivide if we liked.
As soon as we got the keys, we ripped into it! Four big trees have been removed which has opened the property up massively (three of them were dead or dying due to diseases), the kitchen and bathroom have been ripped out, a plumber has installed a bath, shower and vanity fittings, electricians have installed light fittings and power points, three walls have been removed, jib has been put up and a jib stopper has almost finished his job which means we can soon start painting inside!
We were fortunate to know people in the building trade and we begged and borrowed from everyone we knew – we had a very small budget left over to renovate. We are truly in debt to all the people who have gone the extra mile for us. Once we actually started renovating we realised there were a lot of things we couldn't do just then and would have to wait.
How did you get the finances together?
Myron has lived at home and was able to take advantage of saving. I, on the other hand, have lived alone since I was 18 and was also raising my daughter alone so hadn't saved anything. When I met Myron we talked about buying a house. It was his dream. To do this, I really had to commit to putting a chunk of money aside every pay day (this did mean forfeiting some luxuries).
In my generation a house can seem out of reach especially when you keep hearing it's going to be impossible. I think we start feeling like there is no point in saving as we will never catch up so we just spend our money on other things. Fortunately after a year and half I managed to put aside a bit of money. This money, along with our KiwiSaver, got us enough for a 20 per cent deposit.
We didn't qualify for the [KiwiSaver] Homestart grant but I'd definitely recommend researching all the options to see what you could take advantage of.
What advice would you give to other first-home buyers?
- Don't rush the process.
- Be careful not to be attracted to a place that has been recently renovated; sometimes vendors do them up as cheap as possible to look appealing.
- Do your best to see past something that is run down, and call on friends or family that are builders to take along to a property if you really like it.
- Don't get your heart too set on any one property, more often than not there will be lots of other buyers who would also love to own it. Go in with a mindset of "It would be great if we could get this house, but not the end of the world if we don't." There will always be another house that will suit your needs.
- When buying a house think about what the maximum amount is that you'd be willing to spend on it. That way you can decide on a good number to offer and allow some wriggle room to negotiate if you can.
- The majority of people interested in our house were investors. We knew this house was a family home and we wanted to let the owners know a little about us so we wrote a handwritten letter to them which we asked the agent to present with our offer. The letter thanked them for opening up their house and it also gave them a little insight about who we were (small, young family looking for their first home). So, for those of you looking for your first home sometimes it's those simple touches that can make the difference and make you stand out!
And last but not least - how to pay off that mortgage faster
If you've made it past the hard part of getting a deposit together to buy your own home the next step is, of course, to service your mortgage.
There are steps you can take to pay off your mortgage faster and reduce the amount of interest you're paying, say Susie and Sam:
Round up repayments
If your repayments are $973, for example, round them up to $1000 – every dollar counts towards reducing that debt faster.
Pay fortnightly instead of monthly
If your monthly repayments are $1000, over the course of 12 months you'll pay $12,000. But if your repayments are $500 per fortnight, over the course of the year you'll pay 26 x $500, which is $13,000.
Make lump sum payments when you can
If you come into some money or build up extra savings in your rainy day account, put it on your mortgage. It's always better to service debt first because you're likely to be paying a higher interest rate on your mortgage than you'd receive in interest from savings. But ask your bank how much you can pay off as a lump sum before you're charged a penalty fee. Different banks have different criteria for how much extra you can put down per annum before incurring penalty fees.
Offset savings accounts against your mortgage
This can be done at BNZ or Kiwibank. Say you have a home loan of $200,000 and you also have savings accounts and they're worth a total of $10,000. You can offset the savings accounts against your home loan to reduce the amount of interest you pay on the loan - so instead of paying interest on $200,000 you only pay interest on $190,000.
You'll stop earning interest on those offset accounts but what you pay in interest on your home loan will be more than you'd earn in interest on your savings, so it's the smart move.