The 20% Deposit Myth
Where have all the first home buyers gone?
I have been reading countless news articles discussing the fact that there are less people at open homes due to first home buyers being removed from the market. I wanted to take this opportunity to assure you that there is still hope for first home buyers. The fantastic news is that this measure is temporary – not only that, some 90 per cent funding is available as of today. What that means for those with smaller deposits is that you don’t have to wait until you have 20 per cent deposit before you can buy a home.
Without a doubt, there are less first home buyers at open homes these days, especially those of lower priced properties. It is of course difficult for them to obtain finance or to obtain the required deposit – I myself have quite a few clients who are in that same boat. I’m very happy to tell you that all is not lost – so don’t give up hope of your own happy home!
Trying times only temporary
What I would like to make clear is that the 20 per cent deposit is only a TEMPORARY measure while the major banks are working through existing pre-approvals in the market, as well as approved finance applications due to settle. We expect one of the major banks to start lending within the next 30 days again above 80 per cent - albeit not at the same levels as before. Most of the other banks should begin lending over 80 per cent in the next 30-90 days maximum. Therefore you can rest assured that this is only a temporary measure.
Before you get too excited, I do have to add that although lending over 80 per cent will become available, banks will be selective over who can access this funding. I would therefore suggest you work on the following if are looking to obtain a mortgage above 80 per cent funding:
- Show a savings history - your current rent payments plus what you have been saving should match your intended mortgage amount
- Good account conduct – for example, avoid late payments and unarranged overdraft fees.
- Limited hire purchase debt or short term debt
- Good servicing capability – in other words, the bank would like to see that you can afford the mortgage and still have a little money in reserve to cover for unexpected costs or a rise in interest rates.
- Get a good broker on your side - it is going to be imperative that when the funding becomes available, you are first in the queue!
We can obtain up to 90 per cent funding through Welcome Home Loans at great rates, such as a 5.25 1 year fixed interest rate. This funding is provided through a limited number of banks and is underwritten by the government. In Auckland you are limited to a purchase price of $485,000 – while this might seem impossible to find in the most expensive city in the country, if you look around on the outskirts, there are still properties available at this price. Terms and conditions apply.
Another option is going through finance companies that are able to finance 80 per cent at 5.35 1 year fixed interest rate (with a 30 year term) and another 10 per cent funding at 14 per cent over a 5 year term, which will give you funding up to 90 per cent. The crazy thing is that the above equation results in you paying less interest over the duration of the loan than you would on a normal 90 per cent loan at a major bank over a 30 year term.
A final option is using parental equity. If you have parents or family who are willing to help you get on the property ladder and are willing to put up their property as security, then we would be able to help you as well. We can limit your family’s exposure to the amount of the deposit required, making it less of a risky option for your loved ones. Get in touch with us and we can help you make the most of your family’s help.
Please note that all of these funding methods have got strict criteria. If you would like to find out more please do get in touch – we’d love to help you get into your first home, and even with less than a 20 per cent deposit it IS possible.
Insights into Insurance from Lyndon Mason
What is your biggest asset?
What is your biggest asset? I ask a lot of people this question and I am invariably told it is their house, their car or other possessions. That's why people have these things covered with House, Car and Contents insurance which is great.
But would you agree that your biggest asset is actually your ability to earn an income? If you had an expensive machine in your garage that pumped out your salary each week you'd make sure it is covered should it break down, right?
YOU are the expensive money making machine! If something happens to your health and you can't work it makes sense to have a plan in place. There is a wide range of income protection solutions available that can be customised to your specific situation and budget.
Is your biggest asset protected?
Lyndon Mason 021 222 1591
Nick Kotze 021 19 444 24