Recent research suggests that now is a good time for first time buyers to buy their first home, as a buyer’s market emerges.
In June 2019 Auckland property prices experienced their biggest year-on-year decrease in five years with the average asking price falling 1.9 percent from 2018 to $901,650 according to figures from homes.co.nz. Property prices remained constant in Wellington and Dunedin.
While the real estate market may be turning to favour buyers it’s still a daunting prospect to take the leap and buy your first home.
Property Apprentice investment coach Debbie Roberts shares some timely advice about what not to do when buying your first home.
1. Dealing directly with the bank
Banks have all got different lending criteria when it comes to calculating how much they will lend to you based on your provable income. If you go to the bank you have “always banked with” purely because you think you have a good relationship with them, you could be making a huge mistake. If you don’t meet their lending criteria, they will turn you down for lending, and you will then have to disclose this to the next bank you try to get a mortgage from.
You are far better to use the services of an independent mortgage advisor (also known as a "mortgage broker") who works with all of the different banks and non-bank lenders, so they can find you the best bank for your situation. The best part of working with a mortgage advisor is that they get paid by the bank, so they do not charge you for their services.
2. Borrowing more than you can afford
Just because a mortgage advisor or a bank tells you that you can borrow a certain amount of money, does not mean that you should borrow the full amount. You need to look at your budget to work out how much you can actually afford to pay each week/month for your mortgage, and also allow for additional costs such as rates, insurance, repairs and maintenance etc. Then have a look at how much a mortgage would cost you at today’s available interest rates, and also if interest rates were closer to the long term average of say seven percent and check you can still afford to pay the mortgage at that higher level. If not, you could be putting yourself (and your home) at unnecessary risk.
3. Paying too much for a property
Once you know your top dollar for purchasing a property, just remember this is your limit - not your target. Many homebuyers get so carried away by the excitement of purchasing their home they focus on finding a property they can afford to buy, rather than focusing on buying a home for a good price. Do your research on recent comparable sales in the area in order to be more confident about how much the property that you are interested in purchasing is actually worth, and then try to purchase it for less than that.
Actual market value often has very little to do with the government/council/rateable value of the property, so don’t rely on GV, CV or RV to tell you what a property is worth, and don’t rely on the person who is selling you the property to tell you what it is worth either, as they have a vested financial interest in getting you to pay as much as possible for it.
4. Not doing sufficient due dilligence prior to purchase
In order to reduce your risk of buying a lemon, you need to do your homework (due diligence). At the very least, you do the following before you go unconditional on the Sale and Purchase Agreement for a property:
● Confirm an unconditional offer of finance for that specific property
● Confirm your ability to get insurance for that specific property
● Get a building inspection
● Get a LIM report and/or check the council file
● Get your lawyer to check the title etc
● You may also want to obtain a Registered Valuation in order to confirm that you aren’t paying too much for the property.
5. Over-leveraging on personal debt
Buying the "dream home" is very seldom the best thing to do as your first step on to the property ladder. If you mortgage yourself up to the eyeballs on a home and other personal debt, then not only is that non tax-deductible, it may also impact your lifestyle and also your ability to borrow any further money from the bank in order to invest in property. Buying a fancy home might impress your friends and family for a little while, but as our mortgage adviser once said to me, "People get poor trying to look rich".
In August the Property Apprentice team embarks a nationwide tour, click here to check venues and book. You can register for a free two-hour training event, download a free e-book "The Beginners Guide to Property Investment in New Zealand", or watch a recording of a webinar called "Beginners Guide to buying your first property".
This article is created for Property Apprentice.