Times are tough in the wake of Covid-19. NZME, publisher of the Bay of Plenty Times, is running a finance series in which local experts share their best money-saving advice. In this report, Bay mortgage advisers give their top tips for first home buyers.
The removal of loan-to-value restrictions and rock-bottom interest rates have opened a window for first home buyers, including those with lower deposits.
Kāinga Ora is reporting a spike in first home loan and grant applications but Bay mortgage advisers say the biggest issue for new buyers was still being able to service the debt.
Mortgage adviser of Lifetime in Tauranga, Greg Kerr, said he was experiencing good demand from first home buyers and investors.
"The property market in Tauranga seems to be holding up."
Kerr said they had quite a lot of inquiries from first home buyers with a 5 per cent deposit.
He said a First Home Loan administered by Kainga Ora would do loans on 5 per cent saved deposit but there were special rules regarding income, house price caps and employment history, as well as a 1 per cent premium on the lending value and usually higher interest rates.
However, Kerr said the biggest issue would be servicing the debt.
"The main banks have servicing rates of between 6.5 per cent and 7.2 per cent per annum.
"This makes the servicing tough when the special interest rates are around 2.7 per cent per annum for 12 months."
He said when buyers had less than 20 per cent deposit, lenders charged a fee or added a margin to their standard interest rates and buyers needed more surplus monthly income to offset the lower deposit.
Mike Pero Tauranga mortgage adviser Wendi McGovern said most of their clients were continuing with plans to buy, sell or renovate.
"We have had some clients reach out to us as they think they might struggle to reach their financial obligations.
"The smart move is to act early."
In some cases, McGovern said mortgage advisers might be able to help people with a 5 per cent deposit but each situation was different.
"What's most important is affordability," she said. "Making sure that people have enough income to afford the repayments if they borrow with a low deposit."
However, McGovern said lenders or banks would continue to set their own lending parameters to manage risk – particularly in a more risk-averse environment.
Hope Kerr-Bell, of Majesty Mortgage and Insurance Brokers in Tauranga, said there was a lot of "healthy activity" in the property market, specifically in the Bay.
"Properties are still selling in short timeframes, multi-offer situations and pre-auction offers are common.
"We continue to see the need for buyers to have all of their ducks in a row and pre-approved finance in place, allowing them to make a move quickly when an opportunity presents itself."
Kerr-Bell said there had long been options available for first-home buyers with less than 20 per cent deposit and certain criteria applied to borrowers.
"It pays to understand the different options available because each individual situation is different, and it is not a one-size-fits-all matter."
Although LVR restrictions had been temporarily removed, Kerr-Bell said banks and lenders had their own restrictions for high LVR or low deposit lending due to it carrying a higher risk.
"We haven't seen a significant difference or change from the banks."
Loan Market mortgage adviser for Mount Maunganui, Alastair Watson, said they have had more inquiries in the last few weeks than before lockdown.
"There are heaps more buyers in the market now than before, so [there is] huge demand.
"All segments are very active - first home buyers, investors and up/downsizers. Everyone's in. Lots of properties are attracting multiple offers on them, too."
Watson said given cheaper interest rates, some considering selling had probably changed their mind, too, as it was now cheaper to pay a mortgage than it was to pay rent.
"Overall it's a combination of the demand/supply imbalance coupled with low-interest rates that are fueling buyer confidence."
A 20 per cent deposit was the "sweet spot" for borrowers, Watson said. But he said most had a lower deposit and in the last month banks had been "very cautious", making it harder to borrow. People with less than 20 per cent deposit were seeing lower lending amounts.
Watson said Kāinga Ora's 5 per cent deposit First Home Loans made it easier for buyers with a low deposit.
"We've helped 3 clients achieve this in the past few months," he said.
"There is a cap though which is tough - $500,000 for buying an existing home or $550,000 for a new build in Tauranga or Western Bay."
Kāinga Ora senior product manager Mike Webber said for the first five weeks of lockdown and alert level 3, loan applications to Kāinga Ora dropped to "very low" numbers.
"However, since moving into alert level 2, application numbers have rebounded – with the 59 loan approvals last week the highest this year.
"We are seeing a similar pattern with First Home Grant applications – where applications received over the last four weeks are averaging 945, compared with an average of 715 prior to lockdown."
Top tips for first home buyers
Majesty Mortgage and Insurance Brokers
1. Purchasing property is one of the biggest financial decisions you will make - don't sell yourself short. While being an exciting milestone, it can also be daunting with the amount of information out there, so to help make sense of the process seek advice from a mortgage adviser early.
2. How you operate your accounts can affect your eligibility for a home loan. Avoid poor account conduct by making payments on time and not allowing dishonoured payments or unarranged overdrafts. Check on this often.
3. Avoid or minimise short-term debt. Consistent savings history is fantastic when applying for a home loan.
4. If you already have a mortgage, review this often to make sure you are maximising the options available, enabling you to get mortgage-free faster.
1. Account conduct
Buyers should ensure that they have their finances in order and manage their own money without going into unauthorised overdrafts or exceeding credit limits.
2. Demonstrated savings habit
Show that you can service loan payments compared to the rent you pay and regular savings, eg loan payments $700pw vs rent of $500pw plus savings of $200pw.
3. Live within your means, short term debt is not your friend.
4. Ensure that you will have a job into the future.
5. Come and see us early, so that we can let you know what you can borrow and afford to service, so when you can look at houses in the right range.
Mike Pero - Tauranga
1. Know your ability to borrow, how much you can borrow and if you can use your KiwiSaver.
2. The most important place for any first home buy to start was getting good advice from a mortgage adviser.
"Confidence is key, no matter what the climate."
1. Sit down with a mortgage adviser sooner rather than later. The banks look at four main categories; deposit, serviceability, the property and also credit/bank account conduct. You need to make sure all four are in order and sometimes we need to set some goals and targets to get there.
2. Given all banks will lend a different amount, make sure you're exploring all options as there is a big difference on how much the banks will lend and how much your mortgage will cost.