If property prices take a breather, could now be the right time for first home buyers?
10 February 2017
After years of rapid house price growth across the country, the loan-to-value-ratio (LVR) restrictions imposed on the banks by the Reserve Bank of New Zealand last October appear to be slowing things down.
Recently reported data from QV has shown that even in Auckland, the nation’s most expensive property market, prices dropped by as much as 1.9 per cent in the three months to January. Hamilton and Christchurch experienced similar falls.
What does this mean? Well, after years of feeling like they have been shut out of the market, many first home buyers may feel now is a good time to finally get a foot on the property ladder.
But buying your first home isn’t an easy task, so here are a few things every first home buyer should know.
Buy in an area where you’ll get good capital growth
Not every suburb has house prices increase at the same time or at the same rate, so buying your first home is sometimes less about location and more about capital gains.
If you buy in an area where prices have already seen a lot of growth, chances are this growth may slow down again.
However, if you buy in an area where growth has been slower, then it may increase in time to catch up with the rest of the market. If you’re planning to upgrade to a new home in a few years’ time, you’ll need to use this equity.
Know the terms and conditions of your pre-approval
Every first home buyer will hopefully have been pre-approved by their lender. However pre-approvals aren’t set in stone and there a number of conditions you should be aware of:
• Most bank pre-approvals are valid for just 90 days. Any buyer making an offer on a property after 90 days of their pre-approval being issued will need to go through the credit application process again. If anything has changed with your financial situation in this time, like you or your partner changing jobs, or losing a job, then you may not get approved again.
• The property you want to buy will need to reflect the property outlined in the pre-approval, so don’t bid on a commercial property if you were pre-approved for a residential home.
• Many pre-approvals are subject to a satisfactory valuation of the property. However, the interpretation of “satisfactory” can be very different between lenders, especially if the property is unique or an apartment. Your lender wants to ensure the property you buy is in the right residential zone and if you’re looking at buying an apartment, the valuation can be affected by things like it being zoned mixed residential, so make sure you are clear with your lender.
Make the most of First home buyer grants
There are a number of ways that first home buyers can get a bigger deposit together. You can withdraw part of your KiwiSaver, or apply for the KiwiSaver HomeStart grant.
Clear as many debts as possible before applying for a mortgage
While it can be tempting to have a credit card, having fewer debts will make it easier for the bank to approve you for a loan. When a lender assesses the credit worthiness of an applicant, they take their income and any existing debts into consideration to work out your borrowing capacity.
Many borrowers seem to think it’s your credit card balance that is important; however this is not the case.
Lenders will view your available credit limit as the true debt level, regardless of if there’s only $50 owing on it, or you pay if off every month.
So if you have a credit card with an $8,000 limit, but only owe $750, they will look at the $8,000 limit.
In some circumstances this can affect your total borrowing power, and may mean you’re not approved for the right amount.
Talk to a mortgage broker
Mortgage brokers know the market better than anyone else, so they’ll be able to guide you from the start of the process right through to when the keys to your new home are handed over.
If you want to find a Mike Pero Mortgage Broker near you, visit our ‘Get Started’ page here.