Low Deposit Mortgages. Can You? Should You? | Impression Real Estate
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Low Deposit Mortgages. Can You? Should You?

Posted by Impression on 21, May 2020

Has your three-year house buying plan just become a three-month plan?

You may have been saving thinking your first home would be a few years away. With the LVR rules changed, the banks' deposit expectations are changing. Now you may be able to buy a house with a smaller amount of money saved or stored away in your KiwiSaver. 

Lower deposit requirements do not mean it is easy to buy a house, but more people will now be able to buy with a 5% deposit, yet most will not meet the servicing requirements like higher income and surplus savings each month. 

Most people will still need at least a 10% deposit to get a bank mortgage as even though the RBNZ has removed the rules, the banks are still expecting you to comfortably afford the mortgage repayments with a testing rate much higher than the rates you see advertised. 

Your best bet is to link up with a mortgage adviser that can assess your situation, calculating your borrowing power and what bank is most likely to give you the green light.

The internal lending guidelines at banks and non-bank lenders change all the time, so do not get discouraged if one bank has said no - there are dozens of options available. 

The critical thing to remember is that all banks look at your borrowing power in unique ways. One bank might allow you to borrow $500,000 while another might say $1,000,000 and the next says $250,000. It is an extremely dynamic world, and banks are trying to figure out how to position themselves.

Mortgage advisers save banks a lot of time and money. Our aim as advisers is to save you a lot of time and money, though; rates, incentive offers, and tailored advice. If you want a helping hand with property and mortgage decisions, check out the 90-second mortgage snapshot calculator showing you options based on your goals.

The bank will pay your mortgage adviser if you go through them to help with your mortgage application and structure. The free service offered comes about because banks do not have to pay salaries to advisers who are paid for success only. It is a commission but working with a salaried adviser like at mortgagehq helps you get the best of both worlds.

Buying your first home can be tough and scary, there is lots of paperwork, and you may feel silly asking questions, or risk feeling even sillier, from not asking and ending up stuck. A good mortgage adviser is there to help you understand the details and take care of the confusing stuff with helpful introductions and explanations. Getting a mortgage pre-approval in this market makes sense because things might need to happen fast if the vendor needs a quick sale.

A recession, low deposit requirements, record low rates, and reduced competition because others are out of work, creates an excellent buying opportunity for those that can. Many of our clients are securing properties for $100,000 under recent valuations. House prices can drop. Long term the values should continue to rise especially in places like Auckland. $1mn properties now will be worth $2mn in 5-15yrs. Many things will influence this, but the main factors are low relative supply and the hugely desirable nature of a city like Auckland to the rest of the country and the world.

Although the market is changing the same old good advice still applies:

  • Choose your hunting ground of suburbs, set yourself some TradeMe and realestate.co.nz filters, and get a spreadsheet going.

  • Learn how to make an offer and with what conditions and be prepared to make 5-10 offers before one gets accepted.

  • If you do not have enough to buy your ideal first home, it might be worth considering buying with a friend or some family or consider purchasing a rental first, and continuing to rent the place you live in (rentvesting).

  • Paying attention to the news will scare you, it is better to track individual agents and sites like homes.co.nz, CoreLogic, and newsletters like Tony Alexander for less click-bait news.

Think back to 2008 - buying then would have been scary, but the values have doubled since. This boom produced some of the easiest money ever since rates also halved. It might take six months or 2-3 years, but eventually, people will recognise what a legitimately excellent time this was to buy and feel annoyed they missed the chance. Having a Plan B makes sense but sometimes just executing Plan A and figuring the rest out later is how people get ahead. If you have dual/high incomes with income certainty, and parents/friends that can help if things go pear-shaped, do your numbers and have a look at what is for sale. Rates can go up but currently, the banks are stress testing at around 7% and cover this risk in their calculators - this means they determine you could afford repayments at 7% rates before lending you any money.

Being a good investor (buying your first home is investing) is fundamentally about the ability to form reasonable and sensible judgments in the face of uncertainty. You will always have to work with incomplete evidence. If you can't do that, you will try to wait until the doubt is resolved (an upswing market) and all the proof is in. By that stage, the opportunity no longer exists.

Andrew Malcolm

Managing Director of mortgagehq.



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