Finding the deposit for a first home is a huge financial hurdle and about two-thirds of first home buyers obtain a high loan-to-value ratio (LVR) loan.
The LVR is simply the amount of lending compared with the value of the property, and an LVR of more than 80 per cent is considered to be high.
Since October 1, banks have been required by the Reserve Bank to limit high LVR residential mortgage lending to no more than 10 per cent of new lending. There is speculation that in order to get around this limit, home buyers will use personal loans and loans from Australian second-tier lenders (who are not covered by the Reserve Bank's restrictions) in order to come up with their 20 per cent deposit.
On the good news front, changes to KiwiSaver and the Welcome Home Loan scheme come into effect this month to make things a little easier for first home buyers.
More KiwiSaver members will be able to access deposit assistance of up to $5000. That's because the maximum joint earnings of a couple to qualify for the assistance will rise from $100,000 to $120,000, and the house price caps under which the assistance is available will also be lifted. In particular, the Auckland price cap will lift from $400,000 to $485,000.
The number of Welcome Home Loans, under which the Government underwrites loans for qualifying people, will increase from 845 to 2500.
Interest rates are expected to start rising early next year, and all home buyers should be leaving some wriggle room so that increased mortgage repayments will not cause financial distress. Before you commit, ask your bank what your repayments would be if interest rates rose by 2 per cent over the next two years and check your budget to make sure these will be affordable.
Liz Koh is an authorised financial adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847. For free eBooks, see www.moneymax.co.nz and www.moneymaxcoach.com.