8 tips for affording a first home

8 Tips to Affording a First Home - Article 2-630Buying a first home is becoming increasingly more difficult for many New Zealanders, even though mortgage interest rates are at historical lows. House prices have risen exponentially in what we call the Golden Housing Triangle – the area from Warkworth in the north to Hamilton in the south and Te Puke in the east. These areas are the primary beneficiaries of the Auckland ‘halo effect’. In these areas, house affordability is now on average over 8 times the average income with Auckland being over 10 times the average income. This is a far cry from the days of old where an average house cost four times or less the average income.

Other areas of New Zealand have also seen a significant spike in house prices, especially those in tourist areas such as Queenstown and Wanaka, areas that are conducive to retiring and areas that are now within commuting distance of major cities. For the remainder of New Zealand, house appreciation has been more subdued.

Personal expectations play a part in housing affordability for the first home buyer. There is no doubt that in many areas, house prices have risen whilst wages have been more static. However, many young people are not wanting to compromise in the type of home they would like to live in and how they intend to fund it. Many want a really nice first home with all the modern conveniences and fully furnished plus they want to own it as a couple. This high expectation puts house affordability well beyond the average young couple until later in life.

However, there are ways to afford a house in today’s market. These include:
 
  • Lower ones expectations. Buy a run-down cheaper house and renovate over time or buy a flat or apartment and trade up as the family and income increases.
  • Purchase a home that is within the house price cap of the KiwiSaver HomeStart Grant. This potentially gives a couple access to up to $10,000 for an existing home or up to $20,000 for a brand new home. These figures assume that the purchasers have been saving into a KiwiSaver Scheme for at least five years. The KiwiSaver HomeStart Grant is free money that does not have to be repaid and effectively becomes part of the purchaser’s deposit.
  • Purchase the home with friends or family as co-owners. This makes it easier to meet deposit and income requirements as the bank is assessing this on multiple people rather than just an individual or a couple.
  • Renting with a lease option which enables a deposit to be accumulated over time via an increased rental amount.
  • Parents gifting sufficient money to children to enable them to achieve the required level of deposit.
  • Parents acting as guarantor for the loan their children take.
  • Parents lending money to their children in the form of an interest free loan repayable upon demand.
  • Parents selling their home and combining their capital with the child looking to buy a first home. Both generations jointly purchase a new home that has enough room for both generations to live in. This will typically be a home with a flat attached.
Each of the above have pros and cons and the team at Milestone can help navigate the various options. Milestone has produced ‘The house buyers bible’ to assist in outlining the considerations around buying a first home.