Why luck favours the prepared first home buyer
If you have been waiting for the right time to buy your first home, the property market looks very different from a few years ago.
Since the peak in late 2021, house prices have fallen significantly, there are more properties to choose from, and buyers are generally under far less pressure to make a quick decision. For first home buyers, that creates an opportunity to enter the market in a much more settled environment.
This article covers what has changed, and how to get your deposit, KiwiSaver, cash flow and credit ready.
What has changed for first home buyers
Here is what the numbers tell us.
House prices have come down: national house prices have fallen more than 15% in nominal terms since November 2021, a real inflation adjusted drop of around 30%.
Values have moved back: real housing values are now back at March 2018 levels.
More choice for buyers: listings on realestate.co.nz are tracking at ten year highs, which takes the pressure out of fast paced auction bidding.
There is no need to rush: forecasters expect nominal house prices will not reach their late 2021 peak until at least 2029.
What this means in practice: you don’t need to feel like you are racing the market. There may be more time to get your finances in order, understand what you can comfortably afford and find a property that works for you.
Getting your finances ready
Getting your finances in good shape early makes a big difference when you are ready to apply for a home loan. Whether you are working towards a 5%, 10%, 15% or 20% deposit, how you manage your household cash flow has a big impact on what you can borrow.
Clear high interest debt first: focus on paying off credit cards, personal loans, car finance and buy now pay later accounts. Lenders take these commitments into account when assessing how much you can borrow, and they can affect your borrowing power more than a smaller deposit does.
Maintain your KiwiSaver contributions: keep your KiwiSaver contributions at 3% to capture the full employer match and the annual government contribution.
Put your spare cash to work: direct any extra money towards clearing consumer debt first. Once that debt is paid off, redirect what you were paying into a dedicated high interest savings account for your deposit.
Protecting your deposit from market swings
If you are hoping to buy within the next one to three years, protecting the money you have saved becomes more important than trying to maximise its growth.
Move your deposit into lower risk funds: if your deposit is sitting in a high growth or share heavy fund, we recommend moving it into a conservative or cash fund as you get closer to buying.
Reduce the risk of a last minute drop: a sudden fall in share markets just before you need your deposit could reduce the amount available for your purchase. Lower risk investments help protect your deposit from large market movements.
Cash flow, credit and getting into the market
Before you apply for a home loan, get a clear picture of your spending, your credit history and what you are looking for in a home. Lenders generally look at your bank statements for the three months before you apply, so getting organised early puts you in a stronger position.
Know what you have left each month: track your income and expenses so you know your regular monthly surplus and can show a consistent savings pattern.
Keep your accounts tidy: avoid unarranged overdrafts, late payment fees and unusual discretionary spending in the 90 days before applying.
Check your credit record: Centrix, Illion and Equifax all let you check your credit record. Sort out any administrative errors, old utility disputes or default listings well before you talk to lenders.
Start looking before you are ready to buy: watch listings on Trade Me and realestate.co.nz to get a feel for prices in the areas you like. Open homes show you how much buyer interest there is and what sellers expect. Think about practical things too, such as school zones, your commute and the layout of the section.
How Finsol can help
Buying your first home can feel like there is a lot to work out before you even make an offer. We help you understand where you stand, what you can afford and what needs to happen to get you ready to apply.
Cash flow and budgeting: we help you structure your monthly cash flow, manage your surplus income and build a plan to clear debt.
KiwiSaver: we make sure your fund and contribution rate suit your timeframe for buying.
Borrowing capacity: we run pre assessments to show what you can borrow now and what you need to save, whether you are working towards a 5% or 20% deposit.
Property due diligence: we can arrange valuation reports and help identify potential issues before you make an offer.
Luck favours the prepared. Call us on 0800 346 765 or book a free consultation to start your plan.
Finsol is a financial advisory business founded in Hawke’s Bay in 2010, looking after more than 6,000 clients across New Zealand. This article is general information only and does not take your personal circumstances into account.
