After buying a home for under $500,000 with less than 20 percent deposit, a first home buyer says despite the tough market, there is hope.
It comes as banks toughen up on loan-to-value ratio (LVR) restrictions ahead of Reserve Bank plans to reinstate them from March, requiring more first home buyers to stump up 20 percent deposit. The REINZ national median house price reached $749,000 in December - up $121,000 (19.3 percent) year-on-year - accelerating faster than many Kiwis can save.
After repaying close to $100,000 of debt over three years and saving for a further two years, Tracy Hemingway has finally reached her homeownership dream. In December, she bought a three bedroom unit in Hamilton city, paying $490,000.
Despite the tough market, Hemingway urges first-home buyers to keep saving, put their best foot forward and to be prepared to compromise.
"Hang in there...this market is so tough...keep trying and make compromises.
"I never thought I'd end up in a unit, yet here I am and it's perfect."
After repaying all her debt by December 2019, Hemingway poured her energies into saving. She worked full-time and took on extra work.
Her 15 percent deposit of $73,500 included $30,000 from KiwiSaver, which she contributed to alongside debt repayments. The remaining $43,500 was saved in just over two years. A further $3000 was saved in a separate account for a builder's report, LIM and legal costs.
"I worked a sales job that allowed me to earn commission, as well as extra side hustles totaling $10,057.36 [includes Uber Eats, Lime scooters and surveys].
"I also lived in a flatting situation that meant I had the ability to save a substantial amount of money," Hemingway said.
But repaying debt and saving the deposit weren't the only hurdles. Referred to as a 'low equity borrower', Hemingway said in her experience, banks were reluctant to work with her unless she held banking products with them.
After seeing seven mortgage brokers, the most she could borrow was $400,000 - $16,500 short of the amount she needed. Many didn't work with Kiwibank, the main bank she held accounts with.
After approaching two banks herself, a loan of $416,500 was finally approved.
"[In my experience], you can't just have an unused account with a bank and call them a main bank, you have to have money going in and out for a few months before they would consider you," Hemingway explained.
"You just have to find the person that believes in your dream as much as you do - for me that was the banking specialist at Kiwibank."
Before buying, she watched the market for a long time, including sales prices and patterns. Knowing that banks looked at spending and savings habits over the previous few months, she admits this is likely to have helped her mortgage application.
"I had recently changed jobs to put me in a better financial position, I had no debt and I had good account conduct," Hemingway explained.
She also found it helpful to not compare her situation to others.
"I read stories, listened to podcasts and talked to people...always remembering we're in the same housing crisis storm but different boats and situations."
CEO of Squirrel mortgage brokers John Bolton said banks generally consider first-home buyers with as little as 10 percent deposit. The biggest stumbling block is affordability.
"They look for demonstrated affordability (between rent and savings, can you cover the mortgage at a higher interest rate than today), good account conduct and minimal consumer finance debts," Bolton said.
"The key is showing really good savings ability and the ability to live on a tight budget."