Having bought the house he rented for six years, a Christchurch man says he got out of the rent trap and onto the property ladder with just a few thousand dollars saved.
His message for first home-buyers thinking they can’t ever afford to own a home is not to give up - and to check whether they can qualify for the First Home Grant and First Home Loan to help save a deposit and apply for a mortgage.
It comes as property price rises have risen nationally, making it difficult for first home-buyers to save a deposit fast enough. Real Estate Institute of New Zealand (REINZ) May figures show the national median selling price is up 32.2 percent year-on-year to $820,000.
After six years renting a freestanding, 3 bedroom house in Hoon Hay, around 15 minutes' drive from Christchurch city, Hamish felt resigned to paying rent instead of a mortgage. Selling prices in the area have risen a whopping 78.4 percent over the last year, the median now at $602,000, REINZ confirms (prices in the wider Canterbury region are up 26.5 percent).
Earlier this year, Hamish received a 90 day’ notice from his landlord, giving him an early heads up that the house would be put on the market. At first, he says he wasn’t contemplating becoming a homeowner.
"I wasn’t looking at all as I didn’t think I could afford it," Hamish said.
A conversation with the real estate agent who listed the property encouraged Hamish to reassess his options and possibly save himself the hassle of moving.
"I started looking for rentals and the [agent] looking after the sale convinced me to talk to a broker as he could see that I loved the house," Hamish explained.
Spurred by the agent, Hamish spoke to his partner and decided to talk to a mortgage broker. Having officially become a homeowner in June, all up, he says, the process from mortgage application to home ownership took around three-to-four months.
"I just went through some honest conversations with my broker about budgeting and what was actually affordable...some more honest conversations with important people and adjusting a few outgoings," Hamish said.
With just a few thousand dollars in the bank, a hefty chunk of Hamish’s income went on rent. But he had money in KiwiSaver, which he could take out under the KiwiSaver first home withdrawal.
He also qualified for the First Home Grant (maximum $5000 for existing homes) and First Home Loan, available through Kāinga Ora. For single buyers, this requires income to be under $95,000 (under $150,000 for multiple buyers). He negotiated a property price of the high $400s, coming in under the $500,000 price-cap for existing homes in Christchurch.
Combined with a small top-up from "the bank of dad", Hamish got onto the property ladder with less than 10 percent deposit saved.
"I was eligible for the first home mortgage which meant I only needed between 5 [and] 10 percent...I think my deposit was 8 percent," Hamish said.
Having got a valuation, builder’s report, LIM report and pre-approval from the bank before the deadline for negotiation, Hamish said he made a "clean and unconditional" offer.
He also puts his buyer’s success down to "honesty" and having a "respectful" relationship with his landlord.
"My purchase price was high $400’s and I believe the agreed amount which was negotiated on, was purely because I had been a good tenant for them over the years," Hamish said.
"The fact that I treated the house like my own for six years helped."
Having rented the property first, he already knew what it was like to live in. He believes there’s likely to be other renters who, like him, would love to own the home they live in.
"I think it’s a brilliant avenue for first home buyers to get onto the property ladder...buying off the landlord also meant I didn’t have to pack or move," Hamish said.
REINZ chief executive Jen Baird said in the current market, rather than offer tenants the opportunity to buy their property directly, landlords wanting to sell are more likely to let the open market determine the best price.
In Hamish’s case, the landlord’s acceptance of his offer after the property was listed for sale through a real estate agent gave positive benefits to both parties.
"From the landlord’s perspective it can mean a quick and 'easy' sale in the sense of no open homes and an easy settlement, and from the tenant’s perspective they already know everything about the house in terms of location, commuting time to the office and local amenities," Baird said.
Renters who are contemplating becoming homeowners need to be aware of not only the mortgage costs, but extras such as rates and insurance (possibly also water), that are paid by the landlord, she said.