- First-time homebuyers have struggled to keep up with other buyer groups amid record-breaking property prices.
- Recently introduced government policies are expected to prompt a return of first-time homebuyers to off-the-plan property purchases.
- Some crucial tips can set first-time homebuyers on the right path leading to their very first own door.
The New Zealand property market has covered a record-breaking streak since the onset of the COVID-19 outbreak amid increased demand and supply constraints in the vibrant market. Less restrictive macroprudential rules, combined with loose monetary policy and an economy resilient to virus crisis, precipitated considerable increases in the country’s property prices over the past year.
The latest data from the Real Estate Institute of New Zealand (REINZ) shows that the median house prices across the country rose by over 32 per cent in May 2021 from the same period last year.
At a time when the housing prices are going uphill, first-time homebuyers have struggled to keep up with other buyer groups amid growing housing affordability pressures. A recently released CoreLogic report revealed that the first-time homebuyers' share of property purchases fell to 21.5 per cent in the first quarter of 2021 from 24.8 per cent six months ago.
To improve housing affordability for first-time homebuyers, the government and the central bank have put their best foot forward in supporting more sustainable property prices. While the government introduced a slew of measures in March 2021 to bolster the supply of houses and remove incentives for speculators, the central bank tightened the loan-to-value ratio restriction on investors to control housing demand.
These policies are expected to spur a return of first-time homebuyers to off-the-plan property purchases. Having said that, here are some key tips for first-time homebuyers to make their big purchase easier:
Know What You Can Afford
Before starting to shop for an ideal property, it is imperative for first-time homebuyers to ascertain how much they can safely spend on the house. At times, homebuyers make the mistake of taking huge loans from their banks, ending up becoming house-poor with little or no money left to cover other costs after making monthly mortgage payments. House-poor is described as a peculiar situation where a person owns an expensive property but has no money left for additional expenses after paying the EMI.
It is crucial for homebuyers to leave room for other expenses in their budget to mitigate the risk of foreclosure if they fall on tough financial times. Online home affordability calculators can be used by buyers to set a price range based on their debt, income, credit score, down payment, and potential home location.
Get a Mortgage Preapproval Beforehand
First-time homebuyers can ensure to get preapproved for a loan before placing an offer on a property. Getting preapproved for a loan allows buyers to narrow down their house hunting and strengthen their bargaining position once they have found their dream property. In a preapproval process, the lender evaluates buyers’ finances and determines what they can afford in terms of the mortgage.
Loan preapproval sends the message that the buyer’s credit and finances reach an acceptable standard to successfully secure a loan. With a preapproval letter in hand, homebuyers can make stronger offers to sellers, convincing them that they have the money needed to buy the property. Besides, buyers are less likely to run into last-minute delays or surprises with their lenders when their loans are preapproved.
Check Eligibility for Government Support
Once the first-time homebuyers are clear about their affordability and mortgage situation, they can check their eligibility for different government grants and avail the necessary financial assistance. Such eligibility is usually based on homebuyers' income levels, credit scores, and local requirements.
On that note, it is important to keep in mind that the New Zealand government offers First Home Loan Scheme for first-time homebuyers. It allows borrowers to get a home loan with just a 5 per cent deposit in case they earn under NZ$95,000 per year for one person or under NZ$150,000 for two or more people purchasing together. The government also offers first-time homebuyers a lump-sum payment under its First Home Grants scheme - up to NZ$5000 for existing properties or up to NZ$10,000 for new properties.
Seek Help of Professionals
Buying a property involves a lot of legal jargon and requires a lot of paperwork. And while it is entirely possible to buy the property independently, it is not advisable, especially for the first time around. Thus, it becomes crucial for first-time homebuyers to seek the help of professionals to ensure they are doing things right from a financial and legal standpoint.
Homebuyers can take the help of a professional real estate agent to vet neighbourhoods and homes, negotiate the price with sellers, schedule house hunting tours, draw up contracts and much more. As a professional real estate agent usually possesses overarching knowledge of the property market, it can save a decent amount of time and money for homebuyers who are not well versed with the market. This step works as an additional buffer against making novices’ mistakes.
It is worth understanding that buying your first property demands an enormous amount of effort, time, and commitment. Before jumping on the property bandwagon, it is crucial for first-time homebuyers to closely evaluate their options based on their current life-stage and budgets. The aim should be to buy the right property that does not hurt your financial goals and serve the needs of your family for years to come.