While many Kiwi’s still think it’s out of reach to buy your own home, it is often cheaper than renting.
Banks have tightened credit criteria significantly since the COVID-19 pandemic struck, but first home buyers still have a good chance of getting on to the property ladder particularly as buying a home under current low home loan interest rates often works out cheaper than renting.
It has also never been cheaper to borrow money and with overseas travel not possible it is easier to save money now. Many reports are saying that Kiwis are saving more than they ever before.
Deposits Are Still The Biggest Hurdle
As mortgage advisers we often see situations where the rent someone is paying could easily cover the mortgage payments, but the people have stayed renting as the bank has said they need a bigger deposit.
Deposits are still seen as the biggest hurdle for may first home buyers, but sometimes there are other issues too.
Proving income, other debt, bad credit and poor account conduct can also stop a bank from providing a mortgage.
The key message to any potential first home buyers is to have an adviser review your situation so you know exactly what you need to do to get yourself into a position to buy your own home.
Everyone needs a plan, and the best time to do that is now.
Owning Versus Renting
Of course Kiwi’s love property and most have a dream of owning their own home.
But apart from the “dream” there are some great benefits to owning your own home.
The benefits are not just financial ones, but we will talk about those first.
Financial Benefits Of Owing Your Home – when you buy your first home you will probably end up with quite a large mortgage but with the current low interest rates it’s not quite the commitment that it once was.
It wasn’t long ago when interest rates on home loans were over 5% – 6% but now we are seeing interest rates at about half that level. Most banks are offering 1-year fixed rates at about 2.49% and even non-bank lenders are not too much higher.
Remember that if you have less than 20% deposit then there will be a low equity margin (or fee) which is added to the interest rate until you can show that the house value has increased and/or your mortgage has reduced to give you the required equity.
As a mortgage adviser we have this week helped a couple buy their first home. They purchased a home for $650,000 and had a 10% deposit ($65,000) so needed to borrow $585,000 which is 90%. The selected bank had a 1=year rate of 2.49% and a low equity margin of 0.75% so the home loan interest rate that applies is 3.24%.
The repayments calculated over 30-years will be just under $590 a week, and this could reduce to about $535 per week once they have enough equity to get the low equity margin removed.
This compares to their rent where they are paying $650 weekly, and that is expected to continue to increase.
When owning there are other expenses to consider, but with these included (rates, insurance and maintenance) it will still be slight cheaper than renting.
As you can see with the current interest rates it may be no more expensive to own your home home.
Even if it is going to cost more to own, it is often worth it as you are in more control of the mortgage than you will ever be with setting rents.
Other Benefits Of Owning Your Home – if you have rented for a while you will probably have had frustrations with the house and the tenancy agreements.
One of the most common problems with renting is when the owners decide to end your tenancy which forces you to shift. It happens quite often when the property owner decides to sell or shift into the house themselves. Unfortunately in New Zealand many landlords do think of the property as a long-term investment and often change their minds with what they want to do with the property.
Another frustration is not being able to change much with the house at all. You may want to make changes so the house suits your situation better, or even just to spruce up the home a bit. This is normally not something that a tenant is allowed to do, and even if you are it’s not something that you will want to spend to much on as your rent could be increased or the tenancy could be ended at any stage.
As a tenant you do not have much of a say with decisions involving the property and landlord.
Have A Plan To Buy Your Own Home
Of course it’s easy to talk about buying your own home but the fact might be that you are not in a good position to buy right now.
Most people do need to make some changes before they buy their first home, but that doesn’t mean that you shouldn’t have a plan.
We created this website to give first home buyers a smarter start so they can buy their own home sooner.
The course is called a Pathway to Home Ownership and it steps you through all of the steps to buying a first home, including explanations of what the banks and lenders want to see, plus the options available for you especially if you are not in a position to get bank finance.