Dear friends welcome to our channel. The breaking news in New Zealand you may hear this week should be the New 2021 One-Off resident visa. Since the news was breaking out, we received a flood of enquiries from many future new NZ residents about buying their first home. I understand that these friends never had the experience of purchasing property in NZ. Therefore, It should be the time to update about lending to first home buyers. If you or your family are planning to buy your first home and waiting for that residency, you have to watch or read the content this week. Good planning is critical to success and avoids pitfalls when financing your home. Here I share some important tips with you. please check them and see what you need to work on so that when your residency is ready, you are ready to go.

 

Five Tips that new home buyers have to know

Timeline:

1. Stability of income - 01:25
2. Deposit percentage - 03:10
3. Living expenses - 05:10
4. Account conduct - 06:46
5. Our advise for first home buyers - 08:50

1. The stability of your income

In New Zealand, banks usually check whether the borrower’s income is stable during the loan assessment. To know what stable income is, let’s first look at what are unstable incomes.

Unstable income refers to the fact that your income may be uncertain and easily affected by the environment or the industry you work in.

For example, if you have a casual job, which means you only work if the employer has a job for you and you are available, there is an uncertainty of your working hours on an ongoing basis, then your income would be unstable in banks' eyes.

Another type of unstable income is self-employed. Let's say, if you are running a company, no doubt, you are self-employed. But if you are a contractor, like if you are a teacher, contractor dentist or doctor, or IT contractor, even you don't think you are self-employed, your income still has uncertainty. So, if you are self-employed, and the business is only trading for less than a year, it is very hard for banks to establish your ongoing income level. Therefore, the banks will be very reluctant to approve the loan. If you have doubts about the stability of your income, it is best to consult a professional before you apply for a loan to adjust the loan plan that is most suitable for you.

 

2. Deposit requirement

Do you know how much deposit to buy a house in NZ? 

The standard deposit requirement for first home buyers is 20%. Customers have asked us a lot if they were allowed to get a deposit of less than 20%

The short answer is yes, some customers may get away with less than a 20 percent deposit, but it’s getting harder and harder now The recent announcement from the Reserve Bank is that the banks have less allowance for people with less than 20% deposit. It used to be 20% but now only 10%. In practice, banks' traffic light approach and only allow probably 6% - 7%of selective applicants looking to buy their first home to have less than a 20% deposit. 

To qualify, you have to hold a permanent residency rather than residency because of the travel condition on your visa.

Moreover, more likely you need to be their main bank customer, which means your salary is a credit to their bank for at least six months. Additionally, they have many other criteria as well.

So it will be good if you are ready for a 20% deposit. It’s not only can make the approval so much easier, but also you will have much better interest rates

If you struggle with getting enough deposit, please let us know. We may provide you with some other options depending on your situation to see if we can help you.

 

3. Living expenses

The next point is about being careful with your living expenses. Banks want to know your living expense when they calculate your borrowing capacity. The more you spend each month, the less income can be used to service the loan. The living expenses exclude some one-offs, like travel, holiday, et cetera, and also exclude the rent expense that you are paying right now. Because as a first home buyer, you won't need to pay rent expenses anymore after you own your home. Except for these two types of expenses, the rest of the living expenses will be considered when assessing your borrowing capacity. 

According to the amendment bill for CCCFA, banks have started taking on a stricter approach for living expenses because they need to be responsible lenders and they have to make sure you can afford your home loan while keeping your current lifestyle.

You may think now I have a lot of takeaways, but once I have my mortgage, I will reduce my spending to make sure I can pay for it. But the banks will not simply believe in your money-saving plan when they deal with your loan application.

So, as you can see, your living expense transactions are really important for determining your borrowing capacity, especially if you borrow from your own bank, as they can look back for a very long time. So, it's not the last three months that you start spending less, it's actually an ongoing approach. Therefore, we suggest you make aware of your daily expenses as soon as possible to help prepare for the loan applications in advance. 

 

4. Bank account conduct

The bank account conduct here first refers to the unarranged overdraft situation of your bank account. If it happened to you, you are not alone. It happened to lots of people, including ourselves. Most of the time, it happens because we may use to putting salary in a saving account, leaving only a small portion in the transactional account to cover living expenses. Sometimes, for whatever reason, we forget to check the balance of the transactional account, and a direct debit payment coming out of your account, or you swap your EFTPOS card in the supermarket not knowing the balance is not enough to cover the payment. The banks still allow you to go overdrawn for that transaction. But later on, you notice a red number showing on your bank account because your account went into an unarranged overdraft. You may think it’s an accident and you have enough money in your saving account, but banks do not think that way. They want to make sure you don’t spend more than you have. If you have more than a couple of those overdrawn transactions over the last three months, your application may be automatically deferred. Your application will be escalated to a credit manager to sign off with a more restricted standard. So please try to avoid this kind of issue happens.

The other account conduct matter is related to gambling transaction records in the account. Even you just go to the casino to play a game as a one-off, it is hard to convince the lender that you are not going there as a regular visitor, therefore, your application will be declined.

 

5. Using mortgage adviser vs going to the bank directly

The final point I want to share is a view.

I noticed that many first home buyers do not really know the differences between using a mortgage adviser and going to their own bank. They may have more trust in their banks, so they choose to go directly to their bank for their pre-approval.

Buying a house is a big event for all of us, and even more so for first-time buyers, it is worthy of our careful planning ahead of time.

When you are buying a house, even if you feel that your income and deposit are enough to get approval for your home loan and your situation is very straightforward, there will be lots of important things you may not know. Our key distinction value from the banks is our professional advice. Not all banks are equal. They have different policies and products. For example, some banks' products may help you save interest and help you pay it off quicker. Some banks have products to allow you to take the money out when you need it without going through a full credit assessment. If you don't ask the bank, the chances are they won’t tell you.

You also need to set up a personalised repayment plan according to your situation and goals. For example, how you set your repayment at a balanced level so that you can pay off the loan as quickly as possible while having the flexibility to accommodate your medium to long-term goals such as buying a car, upgrade home, or purchasing an investment property in the future.

Without having a professional adviser by your side, as a first-time homebuyer, you may encounter many challenges.

Therefore, we recommend that you seek the help of some professional advice before buying a house. Under the analysis and guidance of experts, you can make a more predictable mortgage plan that is most suitable for you.

Read more:

Three tips to help you improve tax efficiency under the new interest deduction rules

Are higher interest rates coming?

How loan goes during a lockdown?

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.