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What type of mortgage should you consider if you are considering buying your first home?
The basic principle is the same whether you’re a first-time home buyer or have multiple home purchases under your belt, says John Bolton, CEO of Mortgage Brokers Squirrel.
“It can be floating or fixed: there are some product differences, there are fancy things called revolving credits or offset mortgages, but in general the banks have the same products.”
The difference lies in the credit policy: Different lenders will view first-time home buyers differently, Bolton says.
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First-time home buyers have several options, but it’s a struggle for people trying to climb the ladder on their own.
First-time home buyers struggling to get a deposit together might consider the first-home loan plan. Formerly known as the Welcome Home loan, from the government agency Kāinga Ora, which offers the possibility of a 5% deposit.
There are strict criteria, which means that first-time home buyers cannot purchase existing properties valued at more than $ 600,000, or $ 650,000 for new construction, in Auckland and Queenstown Lakes District; maximum home prices are lower elsewhere, with $ 400,000 the lowest.
There is also a combined income limit of $ 130,000 or an income limit of $ 85,000 for one person.
“It’s a great plan because the government effectively insures borrowers, so banks are much more lenient in the way they approach them,” Bolton said.
“Not all banks are part of the first home loan scheme, but that scheme allows people to buy with as little as a 5 percent deposit, which they might not otherwise be able to do.”
The biggest problem with the scheme is the income limit for a person buying for himself, he said.
“At $ 85,000, you generally don’t have enough income to pay off a $ 600,000 debt, so you don’t pass the management criteria; It’s almost like I meet the criteria, I could do this, but I couldn’t. You certainly can’t in Auckland. “
In fact, the first home buyers who face the biggest struggle are usually those trying to buy a home on their own.
“I think it has always been a problem, but with the high house prices now you really depend on a combined income to get a loan,” says Bolton.
Different lenders will view first-time home buyers differently, says Squirrel’s John Bolton.
Outside of Kāinga Ora, banks lend if you have a 10 percent deposit, but they are quite strict with service at that level, he says.
Another option was to borrow from a non-bank lender, who also lends up to 90 percent. They tend to be a little more relaxed about the service, but their interest rates are higher.
Squirrel generally advises first-time homebuyers to consider a 30-year loan term to minimize repayments on what are typically quite large mortgages.
Student loans are a limiting factor. Ideally, people have gotten rid of their student loans, or at least have them under control, before thinking about buying a home.
“Student loans are bad, they really impact service because they are taking about 10 percent of your after-tax income,” Bolton says.
“We see some big student loans, but generally in professions where they also have pretty decent incomes, so doctors would be a classic example.”
Friends or siblings shopping together, or involving their parents as guarantors or partners, are other options for people struggling to move up the ranks.
Bruce Patton, a mortgage advisor at Loan Market, says the number of first-time home buyers trying to obtain mortgages has increased at the beginning of the year.
ALDEN WILLIAMS / STUFF / Stuff
First-time home buyers struggling to get a deposit together might consider the first-home loan plan.
Low interest rates made it seem more affordable for people to enter the housing market, although some first-time borrowers are getting a bit of a reality check from banks.
“[Affordability] it looks better, but that doesn’t necessarily mean they can borrow as much as they think they can, ”says Patton.
“They look at current rates, while banks don’t calculate refunds on top of the current rate, they calculate them at a higher amount to allow them if they go up again.”
With mortgage rates possibly falling and house prices continuing to rise, a short-term fixed mortgage has some advantages.
“If you are a low-capital buyer, the ability to fix on the short term will potentially mean that the value will increase, and they will go from being a 10 percent deposit to a 20 percent deposit, which means’ You will enjoy better rates of interest when they go out of their limit.
“We are not encouraging anyone to work long term at this time.”
He also advised people to consider their savings history before going to the bank, to make sure they can show that they saved the equivalent of their mortgage payments.
“So if they come in with a small amount of savings, just their KiwiSaver, and they have no expenses, the bank will ask you … can you really pay $ 500 a week for a mortgage when you’re not actually saving anything right now? “
The shift toward selling properties at auction was a potential danger for early home buyers, he warned.
“First-time home buyers generally don’t tend to have the 20% [deposit], which means they need an appraisal and that is problematic, especially with the prices going right now.
“They may get an appraisal and get out of the water and have spent $ 1000 and then have to move to the next property, so that’s one of the biggest challenges.”
