How to own your own home

New Zealanders do aspire to own their own home – but it is an increasingly challenging task. According to the Real Estate Institute of New Zealand (REINZ) the national median price of properties sole in May 2015 was $460,000, up 7% on May 2014 figures.

It included a rise of 20% in Auckland’s median price, up from $625,000 in May 2014 to $749,000 in May 2015.

So if you do want to break into the New Zealand property market – how do you do it? The honest answer is: it can be difficult.

Positives

A couple of positives include the tougher tax rules recently introduced for property speculators.  From October 1 this year investors and foreign owners who buy and sell within two years will pay tax on their capital gains. About one in six houses in Auckland fall into this category according to the government – which cited research by the Ministry of Business, Innovation and Employment (MBIE).

Tougher tax rules for property speculatorsTougher tax rules for property investors

 

Another positive is the recent cut in official cash rate, from 3.50% down to 3.25%. The cut was made due to moderate global economic growth and expected slower demand growth in New Zealand. While the cash rate cut can help to make a mortgage more affordable (the positive) it could also act to drive up selling prices not so good).

RBNZ drops cash rate to 3.25%Home loans: what the cash rate cut means

 

How to save a deposit

Getting a foot on the home ownership ladder to begin with is the most difficult part; some ways to save some extra cash to help it happen include:

  1. Getting another Job – A second job – or a better job with a higher salary – can help. Easier said than done of course, but worth considering.
  2. Moving back in with your parents – If you’re still relatively young, you might consider moving back in with your parents for a year or so. You’d pay less in rent and bills, and living with your parents may make it easier to utilise some of the other methods on this list.
  3. Cutting back – Cutting down on most or even all of your non-necessary spending could reap you serious savings if you’re diligent about it. Going out with mates, your morning coffee, your brand new Netflix subscription; it’s worth weighing up their importance vs. how much you want to be a homeowner.
  4.  Maximise what you’ve got – While it’s important to increase and add to your savings, it’s also important to make sure that your savings are in an optimal place. Find a bank that can offer you an account with a high interest rate and minimal or no fees; you can compare savings accounts here.
  5. Take advantage of bargains – When you go grocery-shopping, try looking for cheaper alternatives if you’re used to buying name-brand products. Buy in bulk if you can, and avoid any ‘luxury products’ you might be tempted to buy. Stick to the basics, and see if you can’t save money on the basics.

Home loans: Going guarantor

Another option to get into the market is to potentially either borrow money from your parents or ask them if they would be willing to go guarantor. It’s not a request that should be made or granted lightly. If your parents go guarantor on your loan it means that they will be liable for the loan if repayments are not made. To be a guarantor it also means that your parents need to be able to demonstrate the capacity to repay.

Property going guarantorGoing guarantor on a home loan

 

Pay it off!

Once you have managed to buy a home, of course, you still don’t really own it: the bank does. And by the way – make sure you compare home loans before you sign up as they can vary in cost! Anyway – once you have your home loan it makes sense to get it paid off as quickly as possible. As an example, a $400,000 home loan over 25 years at an interest rate of 6.50% percent will cost around $810,000 by the time you pay it off. If you increase your repayments by, say, $300 per month though, that same loan would be paid off five years earlier at a total cost of $711,000. The same home, owned five years sooner, and costing almost $100,000 less. That’s a good savings strategy!

Saving heaps on your home loanHere are some more ways to save money on your home loan

 

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