Buying A First Home
What do you think of when you think of buying your first home? Excitement? Dread? Confusion? Maybe a little bit of all three?
21 April 2022
You’re not alone. Buying your first home in New Zealand is an adventure as much as it is a challenge – and like all great adventures, it pays to have a guide.
Here’s what you need to know.
Your first home deposit
Every first home buyer’s journey starts with setting a goal for your deposit: figuring out how much you’ll need, and the steps you’ll need to take to get there.
Why is the deposit important?
Unless you’re a lotto winner or received a sizable inheritance, chances are you’ll need to take out a home loan to buy your first home. To get that home loan, you’ll need to front up a certain percentage of the total purchase price of your home. This is your deposit.
Without a deposit, or the right amount of deposit, you may find it tough to find a lender that will lend you the rest. That’s why putting the deposit together is one of the biggest challenges that first home buyers face in New Zealand.
But don’t fret! While house prices may be high, it’s still absolutely possible to put together your deposit with a little strategy, a lot of perseverance, and a little guidance.
How much deposit will I need?
You may have heard people talking about a 5%, 10% or 20% deposit. The percentage refers to how much you are putting down to buy the home, while your loan will fill in the rest.
Typically, most lenders will expect you to have at least a 20% deposit. This is because of a variety of factors, including the rules set by the Reserve Bank, and the lender’s own sense of risk.
Your required deposit also depends on where you choose to buy. Certain types of homes require a higher deposit – apartments smaller than a certain size are a common one. Every lender has different criteria though, so check with who you’re borrowing with on their expectations – or better yet, speak to one of our qualified MyFuture financial advisers who can help you work out what your options are.
How much is a first home in New Zealand?
Let’s be real: buying a first home in New Zealand is expensive. At the time of writing, the median home is just over $900,000. That means your 20% deposit would need to be $180,000 – not a small amount by any means. This is why so many first home buyers struggle with this part!
However, most first home buyers don’t buy the ‘median home’. They buy a far more affordable home – something a little smaller, maybe a little further away from major city centres. These are sometimes called a ‘lower quartile’ home, and the deposits for these are much more manageable.
Currently, a lower quartile home is valued at around $650,000, meaning a deposit of $130,000 instead.
Then, you have to consider where you’re planning to live. The main cities of New Zealand are far more expensive than anywhere else in the country. This is why many first home buyers choose to live in more distant suburbs or more rural towns, where homes are far less expensive and the deposit is easier to put together as a result.
Government help & grants
Still giving that deposit the side-eye? Don’t worry – the government provides a couple of helping hands to get you across the line.
First Home Loan
It’s absolutely possible to buy your first home with a deposit of 10% or even 5%. The reality is, Banks can lend a small portion of their overall loans to customers with deposits less than 20% but because these are in high demand, in order to qualify for these lower deposit loans you need to meet a fairly high threshold for excellent account conduct.
If you’re unable to secure a low deposit loan from one of the main street lenders, then non-bank and other types of lenders may be able to assist. It’s important to know though that if you do go in with a lower deposit, you will probably need to pay a higher interest rate on the loan itself.
In addition, recent law changes have also made the rules around responsible lending a lot stricter as well, and lenders have to take a closer look at your spending before they can provide you with a loan – especially one with a lower deposit.
As a first home buyer, you may be eligible for a First Home Loan, offered by some lenders and supported by Kainga Ora. This special loan allows you to get into your first home with a much lower deposit than typically required.
However, only some first home buyers will be eligible for this, depending on your household income and the price of the home you want to buy. You can find out more information on the Kainga Ora website.
First Home Grant
If you’re buying your first home and you’ve been contributing at least the minimum amount to your KiwiSaver for at least 3 years, you may be eligible for a First Home Grant of up to $10,000 per person.
Just like the First Home Loan, there are a few eligibility criteria you have to meet first, such as being below certain income caps and regional house price caps, but if you qualify, this grant can make a huge difference to your deposit savings goals.
To get the absolute maximum amount of $20,000, you’ll need to:
- Contribute at least the minimum to your KiwiSaver for 5 years
- Be buying a new home or piece of land
- Be buying alongside someone else who has also done the first two (you each get $10,000)
And yes, you can combine the First Home Loan and the First Home Grant together.
KiwiBuild is a government-run project that encourages the construction of affordable homes. They’re available all over the country, and max out at a total price of $650,000 (at the time of writing), and they’re only available to first home buyers who – you guessed it! – meet certain eligibility criteria.
You can find the specifics here, but it’s similar to the loan and the grant: income and location being the big ones.
KiwiBuild homes are often sold as part of a lottery. There’s a huge amount of interest in affordable homes, as you can imagine, so many of the developments require you to register your interest ahead of time and then win in a random draw.
It’s not guaranteed, and there’s a lot of competition, but KiwiBuild homes are a great option (albeit requiring lots of luck and paperwork!)
One last thing on KiwiBuild homes – when you buy one, you have to agree to live in it as your primary residence for a set amount of time. This means you can’t buy one and rent it out while living somewhere else. Once the time is up, you can do as you like, but for a period of a few years, you can only treat it as your home, not as an investment property.
The deposit is going to be your biggest cost for your home loan, but don’t forget about the other costs of buying your first home.
- Lawyers’ fees. Lawyers will help you look over the sale agreement for a home and deal with the transferring of ownership from the seller to you.
- Builder’s reports and LIMs. These reports give you insights into any possible issues with the home or the land. Some lenders require these before they offer lending.
- Moving-in costs. Connection fees, moving trucks, renovations, furniture – there are heaps of costs associated with moving.
- Mortgage repayments. Here’s an obvious one! Better to have your first few weeks (at least) of repayments already saved up for peace of mind after you move.
- Insurance. House and contents insurance is great to have for if things go wrong, and some lenders require you to have insurance on the building before they lend to you.
- Rates. Rates are charged by your local council to cover things like the cost of roads, water supply, sewage and so on. As a homeowner, you’re a ratepayer, and you’ll need to cover a few thousand dollars a year in the rates.
- Body corporate/resident society fees. Apartments and townhouses come with body corporates or resident societies, which deal with the common property (shared areas that everyone has access to like on-site gyms and pools).
Tools & tips for saving
Phew! Buying your home isn’t a simple thing, is it? It takes hard work and lots of dedication to get your home purchase across the line – and for a lot of people, the hardest part is getting the cash together.
Here are a few tips from us:
- Make a budget. Saving for a deposit takes a long time, but it’ll take a lot less time if you can make a reasonable budget and stick with it. Emphasis on the reasonable: eating ramen and drinking nothing but water will certainly save some pennies, but is it really something you can do for years at a time?
- Be ready for sacrifices. Home ownership has a lot of benefits – security & stability just being the start of them – but those benefits require sacrifices. Be open to buying a smaller home, or one that’s got a longer commute. As soon as you get into your first home, you can then start leveraging that home to create wealth and set yourself up for retirement (ideally, an early retirement!).
- Don’t lose hope. We know that with recent house price rises, it can seem like you’re locked out of home ownership. But with the right attitude and the right support, it’s absolutely possible to get your first step on the property ladder.
If you’re in need of some advice and some support in getting into your first home, we know some pretty great financial planners and advisers – wink wink, nudge nudge.
And don’t stress about costs – we offer a totally free Discovery session that will give you instant insight into what you could do to speed up your first home journey.
For more information, get in touch with the team and book your free session now.