The Kiwi First Home Dream
Chances are, if you’re reading this, you’re one of many Kiwis dreaming about owning their own home someday. Maybe for you that day is not too far away. Maybe it’s a “hopefully in the next few years” kinda thing or maybe it feels like the opportunity to achieve that goal keeps getting further and further away.
We all know about the cost of living crisis that’s seeing everything we need to buy cost more every week, we’ve got interest rates that have skyrocketed from record lows and have more hoops than ever to jump through in order to get lending approved. It can be pretty easy to pop the Kiwi First Home Buyer Dream on the back burner while you focus on just making things work for another week in your world. But, if you are one of the many Kiwis dreaming about owning their own home someday, I want you to give this a read and some consideration.
I guess the reason I’m writing this is because I’m finding myself in conversations with people where they often tell me that they’d love to buy a property but (insert various reasons here). Probably the most common of the various reasons you could insert above would be interest rates, the cost of mortgage repayments and the fear of overpaying or that house prices have further to fall.
Yep, interest rates have gone nuts. Or it feels like it anyway. I know that for a lot of people they feel like the timings not right or that they missed the boat and should’ve bought while interest rates were lower. If you talk to anyone that owned a house in the 80s and 90s, they’ll be quick to point out how high the interest rates were then (and yep, they were). You’d also be right to point out the differences in their income then vs what they spent on a property as well as the average level of lending. These are all likely to be valid points. But, when you get back to 2023, it’s important to consider the options available here and now. This is where I feel like a lot of people could do with a little help to see the opportunities that may be out there for them.
So yeah, higher interest rates drive up mortgage repayment amounts. They’re a fair bit higher than what we were seeing 18 months ago. But people are also buying houses for less now than they were at that time. Like a lot less. I ran through a scenario and did the figures with a client this week where we looked at two identical houses with one being purchased a year or two ago vs one being purchased now. We did it out of curiosity and my client was really surprised at which house worked out cheaper over the next 12 months and beyond (and by how much), depending on how you structure the lending. I really do believe that right now could be the ideal time to get into your own home. So I made a little list of reasons why I think now could be a great time for First Home Buyers to get there foot in the door.
Investors have stepped back from the market - This is a big one, and I don’t think that it’s getting the attention it deserves. Remember a little while ago when you were seeing in the media that First Home Buyers were being pushed out of the market by outrageous offers? Investors were blowing FHBs out of the water everywhere you looked. It was like a mad scramble to grab property to build their portfolios. Well now that competition has all but completely stepped away from the market leaving more openings for FHBs to get onto the property ladder. I’m not saying that was the only reason why people were missing out on properties but it was cheap and easy to borrow money and a lot of investors used that climate to its fullest potential.
Easing of the CCCFA Legislation - In our industry, we have just had a little bit of easing in the restrictions of the Credit Contracts and Consumer Finance Act (CCCFA). These are effectively the rules that lenders have to live by in order to be compliant when lending money to consumers such as mortgages to everyday New Zealanders. There has, earlier this month, been changes to how lenders will consider some of your expenses which means that your ability to borrow money has just got better. This will see people able to borrow more and therefore have a better budget when looking to buy a property. You might be able to afford a much better house this month than you could have last month when applying for lending, simple as that.
We may be at the bottom - of the housing price decline. A lot of very clever economists and other professionals in our industry predicted and continue to state that we would get to where we are now with regard to the expected decline in house prices. Obviously, there’s no crystal ball for where this will stop, but if we’ve reached or are nearing the bottom of the trough then naturally, the opportunity for growth could well be on the horizon. It could be a great time to catch some good wealth growth for those that choose to get in the market soon.
We may be at the peak - The peak of interest rates on lending that is. I really hope that we are (along with the rest of the country, I know). Although history tells us that the road back down is often a bumpy and slow one, if we are at the peak of interest rates then this will help provide some optimism and confidence as they start to head back down. This is a tricky one though because it could also see more people who are sitting on the fence get into the market, which could increase demand for property and see prices stabilise and start their path on an increase again. Again this could be a good thing for those that choose to get into the market soon.
Talk of LVR restrictions possibly being eased - Now this one will be huge for those that are on the ball and ready to go if it does come into play. The Reserve Bank of NZ has proposed to ease LVR restrictions from 1 June 2023. Right now they are consulting with the registered banks around the implementation of the changes. This will mean that banks will be able to lend more to low deposit borrowers. There have been a few instances recently where lenders have opened the doors to high LVR lending and been absolutely swamped with applications and had to close the doors again in a matter of days. If you haven’t quite got a 20% deposit, it would be a good idea to get in touch now and have an application ready to go so that if does go through, as soon as we get word that it has been implemented we’re one of the first in the line for assessment. It really pays to be ready and waiting to go when you can. The current LVR restrictions mean that a lender can only have 10% of its current book as high LVR lending but if these changes are implemented this would see this level increased to 15% of its current book. So, to put it simply, currently if a lender has $100,000,000 of lending on it’s books, then only $10,000,000 is allowed at an LVR of over 80%. If the easing that is being talked about goes ahead, then at the beginning of next month, we could see lenders opening up another 5% of their lending books to high LVR lending making it easier for low deposit borrowers to get into the market. You know that saying about the early bird getting the worm?
The moral of the story I’m trying to tell in this article is, don’t be discouraged by the interest rates, the repayment amounts or the feeling that you might overpay for a property. By all means these things all need to be considered carefully, but don’t let it stop you from figuring out what you options actually are. Find out if you can get into the market now. And I don’t mean talk to your friends or family about it and see what they think, I mean talk to someone who can accurately work out the actual figures and give you straight answers and facts about YOUR specific situation. By doing this, there’s nothing making you jump into a property purchase, but at least you’ll know where you stand and you might just find yourself getting a great deal on a property that could end up being a really good move for your future. There have been a heap of people I’ve worked with who thought they weren’t in the right position to buy a house who ended up in a home of their own in a matter of months or sometimes weeks later.
If you’d like to find out about whether you’re in a position to buy or what you need to get there, feel free to get in touch.
If you are in the position to do it now, have a serious think about getting into the market, there’s a bunch of great houses for sale, there’s less people competing for each property than there was a year or two ago and there are some really good deals out there waiting.
None of what I have written here is to be taken as personalised financial advice, but if you’d like to talk about your individual situation, as always, the email inbox is open 24/7, and my phones on if you want to chat things over and get some advice.