Historically, first home buyers have always been up against it. As well as this, the housing shortage in New Zealand has contributed to an increase in house prices in recent years. In fact, according to REINZ’s Monthly Property Report released in May 2019, house prices shot up 6.4%, compared to May 2018. The report shows the median house price in New Zealand is $585,000. The median house price in Auckland is significantly higher, at a substantial $850,000. In turn, rent prices are increasing, making it even more difficult to save up a decent deposit for your dream home.
Canstar recognises there is an even greater challenge for home buyers going through the mortgage rigmarole for the first time, and compared 10 institutions’ home loan offerings for first home buyers. Click here to see who came out on top as Bank of the Year – First Home Buyers.
Banks, credit unions, building societies and mortgage specialists have a range of options for first home buyers. It pays to compare first home buyer loans, to ensure you choose the most suitable home loan for you.
Canstar compares key considerations for first home buyers choosing a home loan and home loan provider. These include educational resources and available tools, such as home loan calculators.
Educating first home buyers about preparation, setting savings goals and offering savings vehicles that provide incentive towards the end goal of home ownership is paramount.
First home loan features to look for
Providers of first home buyer loans should be arming their clients with full checklists, as well as home loan calculators, so home buyers can estimate the full cost of the loan and the entire home-buying experience. When the time comes to borrow, the lender has to guide the first home buyer through the maze that is buying a home.
Some loan features you may want to consider include:
Other tips for first home buyers
Buying a property – especially first time around – is a big decision. Here are some pre-purchase tips:
Don’t start looking until you have a location
There are thousands of places to buy out there and the possible choices can become overwhelming. Narrow your search to a specific location, before you start looking. Choose either one suburb, or one suburb and anything within a five-kilometer radius of that area. Having a focus will save you precious time.
Suss out the market
Falling “in love” with a property on the very first weekend you start looking can give you a bad case of buyer’s remorse down the track. So, once you’ve chosen your location, put yourself in a good negotiating position by getting to know the value of the suburb you’re considering.
Get home loan pre-approval
It’s vital to know what your maximum budget is for buying a home. There is no point looking at places that cost far more than the bank will lend you. It pays to talk to your financial institution or a mortgage broker about getting a pre-approval in place. You should also work out your upfront costs, such as lenders mortgage insurance and moving costs.
Check your credit rating
Knowing what’s on your credit rating can help you to explain any transgressions to your prospective lender. You can check your credit rating at Centrix, Credit Simple and Equifax NZ.
Your home loan may be the biggest debt you ever have, so you should ensure you are not paying more than you need to. Compare home loans on Canstar’s database.
Finally, once you have found the home of your dreams, make sure that any documentation you sign is conditional on at least a property inspection, as well as finance.
KiwiSaver is the retirement savings scheme in New Zealand. The Government introduced the initiative in 2007.
In the KiwiSaver Scheme, members build up their savings through regular contributions from their before-tax pay, from their employer, and from the government. It is voluntary to join.
KiwiSaver does not replace New Zealand Superannuation (NZ Super), so you can receive super payments and have a KiwiSaver fund at the same time. NZ Super is the Government’s pension scheme available to most New Zealand residents over 65 years old, regardless of how much they earn or how many investments they have.
KiwiSaver can also come in handy before you retire. You can access these savings when you buy your first home, if you have been contributing for three years or more.
Canstar puts in the hard yards here, too, by comparing KiwiSaver providers, to help give you some guidance.
You can read about the basics of the KiwiSaver’s HomeStart grants and first home withdrawal rules here. But be prepared – there are a number of tricks to avoid a nasty surprise at the last moment.
If you were extremely forward thinking, you may have saved all your pennies since the age of 12, to put towards a house deposit. But, for the rest of us, financial assistance on top of any home loan will be a very appealing option for first home buyers. Fortunately, there are a range of first home buyer grants available from the Government and various institutions. However, there are, as you would expect, some limitations in terms of who is eligible. Read more about these requirements in Canstar’s coverage of first home buyer grants.
Grants available to first home buyers include:
After three years of making contributions to KiwiSaver, you may be eligible to apply for a KiwiSaver HomeStart Grant of $3,000 to $5,000 for individuals and up to $10,000 for couples. The grant can effectively be doubled if you are building or purchasing a new home, or purchasing land on which to build a new home, so that the grant may be up to $10,000 for individuals and up to $20,000 for couples.
To be eligible to apply for this grant, you need to be buying or building your first home and have contributed the required minimum amount to your KiwiSaver for at least three years. You also need to have an annual income of less than $85,000 ($130,000 for a couple), plan to live in the house for at least six months, and have at least a 10% deposit. Housing New Zealand administers the grant.
Eligible first home buyers can apply for Housing New Zealand’s FirstHome Grant, which is 10% of the purchase price of a house, up to a maximum grant of $20,000. This grant was designed for people who have a modest income and can afford mortgage repayments, but have trouble saving for a deposit. The FirstHome Grant only applies to specific Housing New Zealand properties, and these are usually located in rural or regional areas.
The Welcome Home Loan is underwritten by Housing New Zealand and only offered by selected banks and lenders. To be eligible to apply for this loan, you will need a minimum 10% deposit, and the price of the house you are buying must be less than the regional house price cap. You also need to earn less than $85,000 a year, or $130,000 if you are purchasing the house with one or more other people.
The 10% deposit means your loan is counted as high LVR lending, and you will therefore need to pay a Lender’s Mortgage Insurance (LMI) premium of 1% of the loan value. The lender may also apply a loan application fee.
Housing New Zealand and Kiwibank have teamed up to provide the Kāinga Whenua Loan for Maori individuals and Maori land trusts, to buy a one-storey house on piles (but not the land) located on multiple-owned Maori land.
Applicants need to meet Kiwibank’s normal lending criteria. Lenders’ Mortgage Insurance is provided by Housing New Zealand for the loan.
Canstar compares the following home loan providers for first home buyers:
