There is no doubt times have been tough for New Zealanders looking to buy their first home. Escalating house prices and supply failing to keep up with demand – particularly in the main cities – have presented challenges for Kiwis’ property plans.
House deposit only one piece of puzzle
While saving enough for a house deposit is an essential part of the process, it’s definitely not the only aspect to consider. A home loan agreement means making a commitment to manage repayments for how ever many years it takes to pay it off. So, before committing to a lender – and a home loan type – it’s crucial to look at what’s going on in the market.
Take a look at one-year fixed rates, for example. There is a 0.8% difference between the maximum interest rate of 4.99% and the minimum interest rate of 4.19% for loans at a loan-to-value (LVR) ratio of 80%. And the range of rates is even more significant when it comes to a 3-year fixed loan at an LVR of 80% – the maximum rate is 5.59% and the minimum is 4.29% – a 1.3% difference. This might not sound like big numbers but, when you’re talking about a loan of hundreds of thousands of dollars, the difference is huge.
The Reserve Bank of New Zealand predicts mortgage rates are set to rise in the coming months, and there has already been evidence of rate increases. But analysis of rates for first home buyer loans shows this demographic have actually seen decreases in rates over the past year in some cases. For example, the minimum rate for a three-year fixed rate has decreased by 0.22% in May 2017 when compared with the same month the previous year.
The largest rate increase has been in the maximum rate for a three-year fixed loan – increasing from 5.25% to 5.59% over the past year.
Canstar has broken down the range of rates, according to products on its database. The results show you can stand to make some serious savings, just by being proactive and checking out what rates providers are offering.
Rates as at 15 May 2016 and 15 May 2017, based on a loan amount of $350,000 at 80% LVR. Source: www.canstar.co.nz.
Rates as at 15 May 2016 and 15 May 2017, based on a loan amount of $350,000 at 90% LVR. Source: www.canstar.co.nz.
Think ahead to future rates – not just the present
If you’re out house hunting, you may be familiar with the term “mortgage stress testing“. Essentially, this is checking to see whether you’ll be able to cope with future loan repayments if rates increase in the future. The good news is, lenders build this into their decision around whether to approve a loan. But, future house buyers can also be proactive and run some checks of their own.
Many lenders – including Canstar’s 2017 Bank of the Year – First Home Buyers, Kiwibank, have online calculators and tools to help you work out what your repayments would be, based on different scenarios. This means you can work these hypothetical numbers into your current budget, to see if it’s financially feasible to maintain.
In 2017, Canstar compared 40 home loan products across 7 providers. To have a closer look at how providers stack up, check out Canstar’s online comparisons – it’s free!
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