6 Tips For First Home Buyers During The Lockdown

Make use of the lockdown to work towards your first home

With New Zealanders getting adjusted to the new norm under the Covid-19 lockdown, many will be thinking about what this means for a pre-Covid plans.  You might be wondering where to now with your first home-buying plans.

Situations like this can throw a spanner in the works of your plans.  However, our advice is always to focus on what you can control and plan based on that.  Here are our suggestions for what you can work on during the lockdown:

1. Focus on the positives

In these uncertain and unsettled times, it is important to focus on the positive factors that will help first home buyers.

Record low-interest rates

With the recent cut of the Reserve Bank OCR to a record low of .25 locked in for at least 12 months, the Banks are offering rates never seen before.

For those with 20% deposits, some Banks are offering 3.05% fixed for 1 year.  Those with less than 20% can still get a mortgage, the lender will charge either a Low Equity Premium or a Low Equity Margin.  These are essentially an increased interest charge to offset the risk of a property’s value falling below the amount of the loan.

Restrained house prices 

Before the spread of Covid-19 took hold, many economists had predicted house price rises of 5% or more in 2020.  Now, ASB’s economist is expecting annual house price growth to be dented with a revised growth rate closer of 1.8%.

An opportunity to make a plan

With the lockdown putting a pause on the housing market, now is a good time to focus on making a plan. Do you have a savings plan?  Make a budget to focus your spending so you can put as much as you can towards your deposit.  A budget will also provide evidence to a lender that you will be able to comfortably manage home loan payments.  When it comes time to go house hunting, prioritise the things you want from a property to help focus your search.

2. Ride The Rollercoaster That Is KiwiSaver

If you’ve been keeping an eye on your KiwiSaver balance, you’ll no doubt have been alarmed by the hit it has taken over the last couple of months.  The market uncertainty caused by the Covid-19 pandemic has meant the sharemarkets have been on a mostly downhill trend.  This, in turn, has affected the investments that back KiwiSaver balances.
The key thing to remember with KiwiSaver balances is that they will go up and down, but ultimately the balance is only really relevant when you come to use it.  For first home buyers, this is when you are looking to withdraw it to use it for your deposit.
There are a few approaches you can use to deal with these fluctuations depending on when you are planning to buy: – note this is not personalised advice – you should speak to your provider for specific advice.

Addtional tip: Be sure to maintain the minimum KiwiSaver contributions (about $25 per week) to ensure you receive the full Government Contribution of $521.43   To receive the full contribution, you must contribute $1,042.86 between 1 July to 30 June each year, this works out at about $21 a week.

3. Concentrate on savings or debt repayment

With the lockdown restrictions, there has been at least one positive side-effect – a cut to spending on eating out, takeaways and entertainment.  If you’ve managed to maintain a stable income, this unspent income can be put towards building your deposit or paying off debt.  This brings us to the next tip…

4. Understand what your key barrier is

Banks rely on your income to determine the level of home loan you can comfortably afford. With the Responsible Lending Code, both mortgage advisors and lenders are required to ensure the borrower will be able to make the payments under the loan.  In order to do this, lenders will ‘stress test’ a proposed mortgage amount against a higher rate of (7% for example) to allow for future interest rate rises.

Things that lower the borrowing power of your income:

  • Student Loans: While Banks don’t consider Student Loans in the same way they do normal credit card debt, they do factor it in as reducing your spare income that can contribute towards a home loan.  So if you are struggling with the income barrier, getting rid of a student loan will help overcome this.
  • Having a high credit card balance and/or limit: Banks take into account the amount the minimum monthly payment (usual 3%) for your credit card at its limit would be each month.  So if you have a high credit card balance, focus on paying it down as much as possible and then lowering the lowest limit you can.
Things that can increase the borrowing power of your income:
  • Other sources of income: Can you get in a flatmate or boarder to come with you into your first home? Banks will factor in a portion of this income into their calculations.
  • Getting a raise: Granted this isn’t going to be likely in the current climate, but even a small hourly rate increase could make a difference.
Hopefully, your employment situation hasn’t been negatively affected by the lockdown as this could, unfortunately, put a bit of a dent into your prospects for a home loan.

Even with the ups and downs of KiwiSaver of late, it is still a great option for building a first home deposit.  One major advantage of KiwiSaver is that it isn’t accessible so it removes any temptation to dip into it.  So taking a look at what you’re contributing to KiwiSaver and considering some additional voluntary payments to it could be worthwhile.
As a first home buyer, you’ll no doubt be wondering how much of a deposit you’ll need.  In a perfect world, 20% is what the Banks would like to see.  However with house prices being what they are this will be out of reach for many first home buyers.  Thankfully there are Low Deposit option available, we’ve put together a summary of options for low deposit loans.

When we discovered that first home buyers often have a fair amount of debt, we wrote this article about the effect debt has on the amount the Bank will lend you.  It clearly highlights the need to lower or ideally get rid of debt if you want to give yourselves a better home loan approval.
If you have a significant amount of debts made up of different credit cards, hire purchases, etc, debt consolidation could be a solution to help get your debts under control and ultimately paid off.

5. Self-employed? Get your accounts up to date

If you are self-employed the Banks will require a recent set of accounts to show what your income is.  Our friends at The Mortgage Lab have provided some guidance as to how you should go about this.

6. Have a chat with an advisor

With the new normal of social distancing, an in person meeting with an advisor is off the cards, however that doesn’t mean a face-to-face meeting isn’t possible.

Luckily with the technology of today, the likes of Zoom and Skype make meeting remotely with an advisor incredibly easy and comfortable within your own home.  A video call helps to be very productive and can help you to get a feel for advisors approach.


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Dustin Lindale April 22, 2020 Blog, Tips for First Home Buyers