When you look at the average property prices in New Zealand, it’s easy to understand why saving for a mortgage can sound almost impossible for many first home buyers.
The median prices paid by first home buyers this year, according to REINZ Monthly Property for April 2021 as follows:
Median house prices for New Zealand excluding Auckland increased by 23.6% from $550,000 in March last year to $680,000, a new record high for the country.
Auckland’s median house price increased by 18.5% from $945,000 in March 2020 to $1,120,000 in March 2021 – a new record for Auckland prices. Other regions which reached record high’s include:
- Waikato’s median price increased by 22.7% from $595,000 in March 2021 to $730,000 in March 2021.
- Hawkes Bay median price increased by 30.5% from $545,000 in March 2021 to $711,000 in March 2021
- Canterbury’s median high increased by 17.8% from $488,000 in March 2020 to $575,000 in March 2021. Also, Christchurch City ($600,000) Timaru District ($430,000) and Waimakariri District ($565,000) all reached median highs in March 2021.
- Otago had a 30.8% increase from $535,000 in March 2020 to $700,000 in March 2021.
- Southland with a 12.2% increase from $370,000 in March 2021. Additionally, Invercargill District reached a record median high of $430,000.
If first home buyers want to save a 20% mortgage, that means they’ll need to save $100,000 to buy a house in most parts of the New Zealand. For eg, a $600,000 property would need a $120,000 deposit.
So, what would first home buyers do to save up enough money for a deposit?
Let’s take a look at some of the possible solutions…
Set a target and get planning
First up, there is no escaping the fact that – short of a Lotto win or an inheritance – most people have to save more money to get a deposit. And that requires spending less than you earn and putting aside the difference.
It might sound straightforward, but these days it’s not. For previous generations, it was enough to not be bad with money, but that’s no longer the case. Instead, you have to set a realistic savings goal, based on what you earn, and create a targeted plan to achieve it. This involves working out what size deposit you will need and what you can afford to save to reach their goal.
As part of this, you’ll have to consider your property criteria as, where and what you want to buy is a factor in establishing the deposit required. Often people will have to review their expectations, the key is to “buy what you can afford and make it into a home you love”. A basic entry-level first home is a good step to get on the property ladder. Focus on your immediate needs, not what you need in 4 or 5 years time. It’s your first home – not your last home.
Instead, you have to establish a practical savings target, depending on your income and devise a strategy to reach it. This entails calculating how much of a deposit you’ll need and how much you are prepared to sacrifice to reach your target.
Some General Savings hints:
These hints show you how to save money in many different ways.
Take every opportunity to save money even if it is only one dollar. Remember, that a lot of small amounts add up to a large sum over the course of a year.
Buy second-hand goods whenever possible. Doing this can save you a large amount of money. The Internet, garage sales, classified advertisements, fairs and auctions can provide some great bargains.
Make every effort to avoid buying on credit. Interest and other charges can greatly increase the amount you pay.
Work out how much you are paid per hour by dividing the amount you receive by the hours you work. Before buying something, think of how many hours of work it will take to pay for it. Fly buys and other loyalty schemes may cost you money if you do not buy from the cheapest retailer or if you buy things you do not need in order to get extra points.
Whenever it is worthwhile, mend clothes, glue broken items and repair things that are not working. Avoid paying people to do work that you can do yourself or which you can learn to do from a do-it-yourself book or by taking a course. You could offer to do work for a friend in exchange for them helping you with a job requiring their skills.
Investing in Kiwi Saver is worthwhile because you get contributions from your employer and $1000 and tax credits from the Government. The $1000 contribution only applies to those who joined before 2pm on 21 May 2015. New members who join after this date are not eligible for the payment.
Check to find out which Provider looks to be suitable for you. Go to fund finder.
Borrow books, music, art, dvd’s, etc from your local library. Join a toy library if you have young children.
Surveys show that what children want more than anything else is their parents’ time. Buying expensive clothes and toys is no substitute for your time.
Do not borrow or spend more than you can afford for birthday and Christmas presents. You could talk to family and relatives about cutting back on the value or number of presents. Try making presents or buy suitable items when you see them at low prices and keep them until they are needed.
Children do not know the difference between wants and needs and should be taught money skills. Only give pocket money if you know that it will mainly be used for essentials.
Watch out for concerts and other activities that cost little or nothing to attend. If you need a holiday, try swapping houses with a family in another town or go to cabins in a camping ground.
Investigate your deposit options
While a 20% down payment is a decent starting point, some first home buyers can purchase a house with a lower deposit. Depending on your circumstances, your credit record, your account conduct, current debts, and if you meet a bank’s criteria, deposits of 10% or even 5% may be available.
If you’ve been a member of a KiwiSaver scheme for three years you will take out all apart from $1,000 to put toward your first home purchase.
Kāinga Ora: Government assistance for First Home Buyer deposit
Under the government’s First Home Loan Scheme, you may be able to purchase a first home with as little as 5% deposit. However, you will need to have NO other debt and your account conduct with the bank and your credit record has to be excellent with no unpaid accounts or late payment charges.
You may be considered for a First Home Grant if you’ve been contributing to a KiwiSaver scheme for at least three years. You can get $1,000 per year for each year you have been contributing up to a maximum of $5,000 for an existing home or $10,000 for a new home.
If you have a partner or a friend or family member who wishes to purchase the home with you this can mean that you can both get the grants and so you will have up to $10,000 for an existing home or $20,000 for a new home. Each region in New Zealand has maximum buying limits which are set by the Government. Other residency requirements must be met, as well as area house price limits.
After three years in KiwiSaver, you may be able to take all, apart from $1,000 of the funds in your KiwiSaver account to support the purchase of your first house. This is referred to as a KiwiSaver withdrawal.
Learn more about the KiwiSaver withdrawal scheme on their official page
Distribute the burden
Another option is to see how some of your family is able to assist you with your deposit for your first home. This route is often known as “the bank of mum and dad,” and it usually entails family members gifting some funds or having a loan guarantee using their own home as collateral.
Another way that family and/or friends can help you save money is to let you move in with them if they have space. When you’re younger, moving back in with your parents might be a little bit of a hassle, but it’s a tried-and-tested way to save money on things like rent and expenses.
Reorganize your financial situation
Spending less to increase the savings has received a lot of flak in recent years. But it’s not just giving up on your weekly lavish brunches forever; it’s about minimizing living expenses in a sensible way for a usually short period of time to achieve your goal of home ownership.
The positive thing is that we have greater leverage of our budgets than we thought. It’s easy to fall into bad patterns and it’s difficult to break them. However, you have the ability to alter the situation. Depending on how much you want to achieve the goal of being a first home buyer will determine how much sacrifice you will be willing to make.
Making changes to your lifestyle, such as what you drive, consume, and use for fun is a good strategy to use so minor expenses, such as a regular coffee, add up quickly.
Other cost-cutting suggestions
- Using the resources and guidance on sorted.org.nz, such as mortgage, savings, and budgeting calculators may help you.
- Get rid of any consumer loans you might have before beginning to save for a deposit, repay and cut up your credit cards.
- Create a new bank savings account. It’s a smart idea to set one up when the funds aren’t readily available, such as at a branch other than the one used for regular purchases.
- Consider increasing your KiwiSaver contributions to 8%
- Increase your money by finding a second job, starting a side business, selling anything you don’t really need, downgrading your transportation, and taking advantage of bargains.
- Early on, talk to a mortgage adviser, a financial adviser, or an accountant and they have insight and tips that will help you set and achieve your goals.
If you help with understanding your options and how much you can borrow for your first home, please reach out to us or call us at 027 436 8367 to set up an appointment.
