Buying your first home is a huge milestone—a mix of excitement, nerves, and plenty of big decisions. The housing market can be competitive and complex, which makes preparation key to achieving your dream of homeownership. This guide will walk you through the process, highlight common challenges, and provide tips to make your journey smoother.
Step 1: Assess Your Financial Readiness
The first step in purchasing your first home is understanding your financial situation. Ask yourself the following questions:
- How much have you saved for a deposit? Most banks require at least a 20% deposit for a home loan. However, if you meet certain criteria, including being a first-home buyer or purchasing a new build, you might qualify for a lower deposit option of 10% (or even 5% in some cases).
- Can I use my Kiwisaver? If you’ve contributed to KiwiSaver for at least three years, you may be eligible to withdraw almost all your savings (except for $1,000) to use as a deposit.
- What can you afford to borrow? Consult your mortgage adviser to determine how much you can borrow based on your income, expenses, and current interest rates. Remember to factor in additional costs such as legal fees, building inspections, and moving expenses.
Step 2: Understand the Challenges of Securing Finance
For many first-home buyers obtaining finance is one of the biggest hurdles. Here are some of the common difficulties you may face:
1. Rising Property Prices
The New Zealand property market has seen significant growth over the past decade, especially in major cities like Auckland, Wellington, and Christchurch. High property prices mean higher deposits, which can feel out of reach for many first-time buyers.
2. Strict Lending Criteria
Banks and lenders have tightened their lending criteria in recent years. They’ll closely assess your financial stability, credit history, and income-to-debt ratio before approving a loan. If you have outstanding debts or an irregular income (common for contractors or self-employed individuals), securing a mortgage might be more challenging.
3. Loan-to-Value Ratio (LVR) Restrictions
The Reserve Bank of New Zealand imposes Loan-to-Value Ratio (LVR) restrictions to help stabilise the housing market. These rules limit the number of low-deposit loans banks can offer, making it harder for first-home buyers with less than a 20% deposit to secure finance.
4. Rising Interest Rates
Interest rates have fluctuated significantly in recent years, and even a small increase can make a noticeable difference to your mortgage repayments. Rising interest rates may impact how much you can borrow or afford to repay over time.
5. Competing with Investors
First-home buyers often find themselves competing with property investors, particularly in high-demand areas. Investors tend to have more capital and can move quickly when a property comes on the market.
Step 3: Tips for Overcoming Financial Challenges
Despite these hurdles, there are strategies to improve your chances of securing finance and purchasing your first home:
1. Work with a Mortgage Adviser
A mortgage adviser can help you navigate the complexities of obtaining finance. They’ll compare loan options, negotiate with lenders on your behalf, and ensure you’re getting the best deal possible. In most cases, working with an adviser is a service that comes at no cost to you.
2. Build a Strong Deposit
Save as much as you can towards your deposit. Explore government support options like KiwiSaver and the First Home Grant to boost your savings. Additionally, consider living with family temporarily to reduce your rent and accelerate your savings.
3. Reduce Debt and Improve Your Credit Score
Pay off any high-interest debts and avoid taking on new loans in the lead-up to applying for a mortgage. Ensure you’re paying bills on time to maintain a good credit score, as this is a key factor lenders consider.
4. Consider Regional Areas
If you’re flexible, look at properties in smaller towns or regional areas where prices are generally more affordable. With remote working on the rise, this option is becoming increasingly popular.
Step 4: Start House Hunting
Once your finances are in order, it’s time to start searching for your dream home. Here are a few tips:
- Get pre-approved finance: Pre-approval gives you a clear budget and shows sellers you’re serious.
- Research the market: Spend time researching areas that suit your lifestyle and budget. Keep an eye on property listings, attend open homes, and track recent sales to understand the market trends.
- Hire professionals: Engage a qualified property inspector and solicitor to guide you through the buying process and protect your interests.
Final Thoughts
Buying your first home is an exciting but challenging journey. While there are hurdles to overcome, careful planning and leveraging available resources can help you achieve your goal. Remember, patience and persistence are key. Surround yourself with experts—mortgage advisers, real estate agents, and legal experts—who can provide valuable advice and support throughout the process.
At Lumen Financial, we specialise in helping first-home buyers navigate the complexities of securing finance. Contact us today for personalised advice and assistance on your journey to homeownership. Let us help you turn your dream of owning a home into reality.
