Times are tough in the wake of Covid-19. NZME, publisher of the Rotorua Daily Post, is running a finance series where our local experts share their top money-saving tips and advice. In this report, Bay of Plenty mortgage advisors give their top tips for first-home buyers in the current property climate.
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 advisors say the biggest issue for new buyers was still being able to service the debt.
Mike Pero Rotorua mortgage advisor Stacey Stefadouros said some clients were taking advantage of lower interest rates and buying investment properties.
Stefadouros said loosened LVR restrictions "could be good news for first home buyers if they have a secure income and were looking to buy this year".
Other clients - including those in the tourism industry - had been hit by the downturn and were having to look again at financing arrangements approved or started before lockdown.
"For anyone who has had a significant loss of income it can really hurt, and some might struggle to reach their financial obligations."
Stefadouros said the smart move for people in that situation was to act early.
"Get on the front foot because there are options available."
She said buyers should keep in mind that lenders/banks would continue to set their own lending parameters to manage risk, particularly in this environment.
Graeme Leigh of The Mortgage Centre Rotorua said there were still more buyers than sellers in Rotorua and there were limited listings to choose from.
Leigh, who has been a mortgage advisor for more than 20 years, said he had a number of clients consistently facing multi-offer situations.
"First home buyers seeking to use First Home Grants from Kāinga Ora are finding it difficult to find a suitable property at $400,000 which is the price cap for this region."
He believed the removal of LVR restrictions would have little impact on borrowers or the property market, saying it was more in response to Covid-19 and mortgage payment deferrals.
"In a practical sense for property buyers, there is no real difference from the situation that previously existed."
Leigh said the restrictions imposed in 2016/2017 were referred to as "speed limits" and there was a separate percentage imposed for home buyers and investors.
"A minor impact though is that some lenders may now consider providing a pre-approval where clients have a deposit of less than 20 per cent."
Leigh said banks were still assessing each loan application based on their normal lending criteria and a client's ability to make repayments remained the key issue - also how their incomes and occupations have been impacted by Covid-19.
"However, a 20 per cent deposit still remains the benchmark."
Mortgage adviser with Lifetime in Tauranga, Greg Kerr, said he was experiencing good demand from both first home buyers and investors.
"The property market in Tauranga seems to be holding up at present."
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 Kāinga Ora will do loans with low deposits 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 was 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 have less than 20 per cent deposit, the lenders charge a fee or add a margin to their standard interest rates and buyers need more surplus monthly income to offset the lesser deposit.
Hope Kerr-Bell, of Majesty Mortgage and Insurance Advisors in Tauranga, said there was a lot of "healthy activity" in the Bay property market.
"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 to date."
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
Mike Pero Rotorua
1. The number one tip is be prepared so you can feel confident about making your move, but this is true in all economic environments – not just our Covid-19 impacted environment.
2. As a first home buyer, you want to know you've got the ability to borrow and be confident you understand the financial side of property purchasing. Then when you see your opportunity and you believe it's a good deal, you'll be ready to go in and make your offer and or negotiate.
The Mortgage Centre Rotorua
1. Talk to your bank or mortgage adviser and prepare yourselves for obtaining a loan approval.
2. Establish your maximum borrowing limit.
3. Get rid of any high-cost short term debt that will negatively impact on your ability to repay your home loan.
4. Reduce credit card or store card limits to their absolute minimum.
5. Make sure your existing account conduct is good, keep payslips to verify your incomes.
6. Check whether you qualify to withdraw your Kiwisaver funds (there are rules) and that you qualify for a First Home Grant and to what amount.
7. Do your own credit inquiry to check that your credit report is fine.