Buying your first home? Here's what you need to know.
For many, home ownership is a major milestone of the classic kiwi dream; it marks a choice to settle down and begin planting roots in life. As a big decision and life event, there is much to consider and be aware of.
Property is no doubt expensive in New Zealand, so finding extra financial support in obtaining your first home is all the more important. As a general rule of thumb, the larger your deposit the smaller the amount of interest you will pay on a mortgage, as well as the lower the repayment amounts. In most cases, lenders such as banks will require a deposit of 20%. With the national median house price at $725,000 as of October 2020, and in excess of a million in locations such as Auckland, in this example you would expect a deposit of $200,000 for an Auckland property. However, it is still possible to acquire a mortgage loan with additional restrictions if you have a lower deposit amount, such as 10%, dependent on review by the lender. If you do not have a 20% deposit yet, don’t be afraid to ask! Lenders will have packages that cater to you, and can show you different possibilities to help you buy your first home.
There is also support for those with smaller deposits available. Check if you are eligible for the government’s First Home Grant, valued at up to $10,000 for each buyer. This is subject to conditions such as having contributed to KiwiSaver for a minimum of 3 years, current possession of a 5% deposit, amongst more outlined at Kāinga Ora. Other possible forms of support include the Tenant Home Ownership Grant, which can help make saving a sizable deposit achievable. You may also be available for a First Home Loan which will assist you in gaining approval for a mortgage with lower deposit amounts. Don’t forget you could be able to withdraw from your KiwiSaver in order to raise a more sizable deposit and help negotiate a better mortgage loan.
The terms of your mortgage loan are also important, such as whether the interest rate is fixed or floating. Floating interest loans will change with the interest rate depending on the market, typically linked to the official cash rate. The benefit of this type of loan is flexibility and freedom to repay different amounts toward your loan, but rising interest rates can catch you by surprise if the interest rates were to move a lot. On the other hand, fixed interest rates will grant you more certainty in your repayment amounts, as well as allow you to take advantage of current low interest rates.
Like all things, there are both pros and cons to weigh up depending on your personal situation when obtaining a loan for your first home. Take your time to shop around different banks and check out the benefits provided by each, and most mortgage brokers offer free consultation services and advice which can help find a loan that best suits you.
Information you need before purchase
You’ve viewed the property that’s been on your mind and fell in love — it’s perfect! Or so you might think, but what if there were issues hidden from the naked eye waiting to crop up? Playing it safe is important with buying your first home, so it can be wise to obtain both a building report (pre-purchase building inspection) and Land Information Memorandum (LIM).
Obtaining a building report/inspection involves hiring a qualified professional to undertake an inspection of the property, who will generate a report detailing the integrity and condition of the house. The cost of these reports can vary anywhere from $400 to over $1000 dependent on the property and the supplier. While this may seem an additional burdensome cost, it will identify any issues past, present, or future with the property, which can save you large amounts in maintenance or repair costs. These inspections are crucial to ensure that you buy a property in good condition, and that you are paying an appropriate price for it. Take care to hire reputable professionals that carry out comprehensive inspections as this is an important procedure, with good places to start looking being the New Zealand Institute of Building Inspectors or the New Zealand Institute of Building Surveyors.
The Land Information Memorandum (LIM) is a report held by the local council which will contain important information such as land condition, rates, consent and planning, as well as much more. A thorough explanation and examples can be found at your local council’s website, such as at the Auckland Council. A LIM’s cost is set by the council, and you can expect to pay roughly $300 for one, such as $307 for a standard LIM from the Auckland Council. This may sound like it is excessive or overlapping with the building report, but it is equally as important to obtain. The LIM will inform you of risks such as flooding and erosion, planned public developments which might affect the property, as well as outstanding property rates. Having a recent LIM also allows you to check whether any alterations and work done on the property have been consented for, and whether it has a council compliance certificate.
If you want true peace of mind and certainty when purchasing your first home, it is paramount that you obtain both of these basic reports and read them carefully. It helps discover any issues, legal or physical, that may be associated with the property you are intending to purchase.
For those of you wanting just a high level information overview on a property that is of interest, tools like Homes.co.nz and Oneroof.co.nz is able to quickly tell you for free information on the last transacted price of the property, size of the property, number of bedrooms, bathrooms and toilets etc, and even sale prices of nearby properties and affordability calculators to help give you a sense of what you can expect to pay.
Additional costs in purchasing your first home
In addition to the cost of obtaining a mortgage, building report, and Land Information Memorandum as mentioned above, there are further costs involved in the typical process of buying your first home.
Purchasing your first property is a complex process and a huge financial decision, one that involves much legal paperwork and information that most people will be unfamiliar with. It can be in your best interests to employ the help of a property lawyer or conveyance lawyer, who will be able to help you understand all the documents in the process, and ensure you sign a favourable purchase agreement. Their assistance, although expensive as fees can build up into the thousands, can greatly streamline the process of purchasing your first home and safeguard you against any mistakes.
It is also a good idea to start considering property or home insurance before you finish purchasing — it is often compulsory as a condition of your home loan. Just like finding a suitable mortgage, shop around and consider different forms of property insurance as well as providers. You can expect to pay on average $1200 annually for this, but this is dependent on the sum insured cost of your property as well as the excess you choose on the cover. Ultimately, you need to find a coverage plan that meets your needs, so spend time searching and keep your fingers crossed to find a good deal. To learn more about home and contents insurance, check out Quashed. A platform helping Kiwis make sense of insurance and get on top of their insurance spending.
You can try minimise the costs of home insurance by taking advantage of multi-policy discounts, where possible, or other special discounts such as first time or loyalty discounts. Contents insurance can also be lowered through adding security improvements and features to your home to deter theft or damage. In addition to this, you may also want to take out mortgage protection insurance or life insurance, in order to protect your property in case of unfortunate events which could hinder your ability or your loved ones' ability to meet mortgage repayments and keep a roof over your heads. Your home will likely be your biggest asset, and is one you do not want to lose.
Managing your various insurance policies is easy with Quashed. Where all your insurance comes together in one place online.
There are also many other obvious but easy to forget costs that crop up when you purchase your first home. Namely, moving costs, costs of repairs or renovations that need to be done, rates and set-up fees, as well as other ongoing or one-off fees may pop up. If you are instead purchasing an apartment, there will be body corporate fees and it is important to attend the annual general meeting or inquire to find out how this money is spent. Read here on what to expect with Apartment living in New Zealand. Plan ahead to estimate how much leeway in your budget you will need for these costs.
Start preparing early
Buying your first home is a lengthy and somewhat complex process, with a number of costs and considerations which may not be immediately obvious. The best you can do to prepare is to ensure you budget appropriately, and allow for breathing room in case you are caught off-guard with unexpected or escalating expenses. With some research, due diligence, and planning, purchasing your first home will be a fulfilling achievement that marks a new chapter in your life.
Good luck and happy hunting!