Stuart Wills of Mortgage Link explains the options available to first home buyers.
Earlier this month the new rules pertaining to low equity loans officially came into play for New Zealand banks. This means the bank is now restricted to doing just 10% of new lending as low equity lending. Any lending with less than 20% deposit is deemed as low equity.
This new rule is a measure introduced by The Reserve Bank who stated it was implementing measures to curb the amount of high-loan-to-value mortgage lending from 1st October, and these are “designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.”
But first home buyers are finding it is now harder to get a mortgage.
Buying In A Hot Market
If you have been following the news you would know that house values have been increasing and in particular the Auckland house prices are hitting new record prices, driven by high demand and lack of properties. When you are buying in a rising market you want to enter the market as soon as you can, before the house prices rise beyond what you can afford. This often means that you may need to buy a home before you have saved a big enough deposit, and with the new rules this may now be harder.
How To Buy A First Home
The burning question for many young Kiwis now is “how to buy a first home when they do not have 20% deposit saved?” Unfortunately the banks are giving poor advice in this area as most banks are not aware of the options available for first home buyers and only know what they can offer. So if one bank is not able to offer low deposit home loans, they will most likely advise you that you cannot buy a first home. This applies to all banks; ANZ, ASB, BNZ, Co-Operative Bank, HSBC, Kiwibank, TSB or Westpac.
Mortgage brokers have a range of options that includes most of the major banks, but also they should have access to other non-bank lenders. A good mortgage broker will not only source a home loan for you, they will suggest a mortgage structure to suit and show you the best way to pay your mortgage off more quickly.
What Are Non-Bank Lenders?
The advantage of non-bank lenders is they are not governed by the same rules as the banks and therefore are able to offer low deposit home loans. Two of the most popular non-bank lenders are Liberty Financial and Resimac, who are able to offer low deposit home loans with a 10% deposit and in some cases a 5% deposit.
In some cases these non-bank lenders might be a little more expensive than the banks, but this is not always the case. What they do offer though is another choice, and this may be the only way to get a home loan to enable you to buy your first home.
Additional Support For First Home Buyers
In New Zealand we are lucky to have a supportive Government who wants to make it easy for people to own their own homes. Through Housing New Zealand we can access the Welcome Home Loans, you can make a First Home Withdrawal from your KiwiSaver account for the deposit and in addition you can get a KiwiSaver First Home Deposit Subsidy of up to $5,000 per person to help with your deposit too.
Refinance Your Mortgage Later
Over time you would expect the value of your home to increase and hopefully your mortgage will also be reducing. Your equity will increase so that over time you will have more than 20% equity and therefore most banks would be happy to offer you a home loan. It gives you a stronger position with all of the lenders and therefore options to refinance your mortgage. You can speak to a mortgage broker any time to consider refinancing your mortgage or to renegotiate the terms of your mortgage whilst remaining with the same lender.
Stuart and Erica Wills of Mortgage Link can assist you with all of your finance requirements including residential mortgages, commercial mortgages and investment property. www.mortgagelinkauckland.co.nz