Handy guide for first home buyers in New Zealand

Buying a home for the first time can be a very exciting – and daunting – process. There’s so much to learn before you can talk confidently with mortgage providers and property agents, lots of preparations to make, and plenty of pitfalls to avoid.

This handy guide will tell you everything you need to know as a first home buyer in New Zealand – and guide you through every step of the process, from saving your deposit to claiming the keys of your very own home.

Assistance for first home buyers

It can be tough, getting your foot on the property ladder, but the New Zealand Government is keen to help Kiwis achieve home ownership. To this end, Housing New Zealand has established several initiatives that can make it easier to buy your first home.

Welcome Home Loan

While you can apply for any type of home loan if you meet the banks’ basic lending criteria, as a first home buyer you may be eligible for a Welcome Home Loan – a special initiative underwritten by Housing New Zealand to help families get into their first home.

Welcome Home Loan NZ
While most lenders require you to have a deposit of at least 20% of the value of your house before they’ll consider your mortgage application, with a Welcome Home loan you need a deposit of just 10%.

Welcome Home Loans are only available to people who meet specific eligibility criteria:

  • You must be a New Zealand citizen or permanent resident
  • You must not already own any property
  • You must be planning to live in the house you are buying – Welcome Home Loans can’t be used for investment properties
  • Your household income for the 12 months before you apply must have been:
  • Less than $85,000 for individuals
  • Less than $130,00 combined if you are buying the property with other people

There also are restrictions on the value of the property you can buy, depending on the region you live in and whether you are buying an old or a new property:

Welcome Home Loan House Price Caps in NZ

If you meet the eligibility criteria for a Welcome Home Loan you will still have to meet all your bank’s other lending criteria, too – they’ll consider your credit history, any other debts you have and your ability to service your loan repayments.

You may have to pay an application fee and other administrative charges for your Welcome Home Loan, just as you would with any other mortgage. You’ll also be required to pay a 1% Lender’s Mortgage Insurance premium, which protects the lender in case you default on your loan.

Some banks will allow you to apply for a Welcome Home Loan even if you’re considering building rather than buying your first home – you’ll need to check with your individual lender or a mortgage broker for details.

First Home

FirstHome is another initiative for eligible buyers with modest incomes. It applies to selected Housing New Zealand properties, which are offered for sale exclusively to first time buyers (if they remain unsold after three months, the properties go on general sale).

If you’re eligible for FirstHome you can apply for a grant of 10% of the purchase price (up to $20,000) to use towards the deposit. You can even combine a FirstHome grant with a Welcome Home Loan or KiwiSaver HomeStart grant (more on this below) if you qualify for these.

Preparing to buy your first home

Buying a home is a major undertaking, and one that requires a lot of preparation. That preparation comes in several phases, often starting several years before you’re ready to start chatting to agents.

Long term preparations (in the years before you’re ready to buy)

Save for your house deposit

Save for your first home loan deposit
Saving a deposit can be the most challenging aspect of buying a home for most first-time buyers. It can take years to accumulate the lump sum you need – and as house prices rise, the amount you need rises with them, making it seem like a never-ending task.

Even if you qualify for a Welcome Home Loan, and only need a deposit of 10%, you could need to save up to $65,000 depending on where you live.

The key to saving for your home deposit is to set up a separate account and transfer your extra cash there as soon as you get paid – before you have a chance to notice it has gone (or get tempted to spend it).

Make sure your house deposit savings are in an account with low fees and the highest possible interest rate, and that they’re not easy to get at. Be consistent – even a small amount each week will add up over time – and channel every extra dollar that comes your way into your savings.

Pro-tip – pay off your debts before you start saving!

You’ll never earn as much interest on your savings as you’ll pay on your debt. And there’s no point having savings in an account earning minimal interest if you’re shelling out much more than that each month in interest on credit card debt or other borrowings.
Pay down your debts as quickly as possible, then focus on savings. Clearing your debt will also improve your credit rating and make it easier to get a mortgage (since your cash won’t be tied up in other loan repayments).

How can I get help with my first home loan deposit?

Even with consistent saving and the lower deposit requirements of the Welcome Home Loan, it can be really tough to save the large lump sum you’ll need. But you may not have to do it alone.

Help from friends and family

If you have friends or family members who are willing to help you, there are a few ways they can go about it:

HomeLoan Tick
Make an unconditional gift of the money
Lucky you! This may not work, though, if you’re applying for a low-deposit loan – lenders will generally expect you to have saved the deposit yourself as evidence of your commitment and financial prudence.
HomeLoan Tick
Lend you the money
It’s important that loans between friends and family are properly documented to avoid potentially relationship-destroying disputes later. You could use a loan agreement template, or go through an online loan register service like Credi.
HomeLoan Tick

Act as a guarantor for some or all of your mortgage

Rather than giving or lending you cash for your deposit, a friend or family member can act as your guarantor – which means that they’ll co-sign your mortgage agreement and be jointly responsible for meeting your repayment obligations.

They may be required to use their own property as additional security for your mortgage, putting their property at risk if you default on your loan.

Another option is to use a product like Westpac’s Family Springboard, which allows a family member to use the equity in their property as guarantee for just part of the loan (enough to get you over the 20% deposit threshold) and leave you individually responsible for the rest of the mortgage.

You’ll end up with two separate loans – a short- or medium-term loan secured on both your new home and your family member’s existing property, and a traditional 25- or 30-year mortgage secured only on your new property.

Here’s Westpac’s example:

Use a guarantor for your first home loan - security includes your first home and your family's home

This arrangement means that you don’t have to worry about the LVR restrictions and the difficulty of securing a low deposit loan, or the extra costs associated with high-LVR borrowing.

KiwiSaver

If you’ve been a member of KiwiSaver for at least three years, you may be able to withdraw money from your super account to use as a deposit on your first home. You may even be eligible if you have owned a property in the past, but are currently in the same financial position as a first home buyer.

If you’re eligible you can withdraw any contributions you have made, as well as interest and tax credits, but you’ll need to leave a minimum balance of $1000 in your KiwiSaver account.

According to recent research, 74% of 18-24-year-olds and 59% of 25- 29-year-olds are current using KiwiSaver in this way, as a vehicle to save up for a first home deposit.

If you’ve been a member of KiwiSaver for at least three years and have been contributing consistently during that time, you may also qualify for a KiwiSaver HomeStart grant of up to $10,000 (depending on how long you’ve been contributing and whether you’re buying a new or older home).

To qualify for a HomeStart grant you’ll need to meet the same eligibility criteria as for a Welcome Home Loan:

  • You must be planning to live in the home
  • You must not own any other property
  • Your annual income must be less than $85,000 per year (or $130,000 combined income if you are buying the property with other people)
  • The property price must be less than the value cap for your region (shown above).

If you’re buying a property with other people and you each qualify for a HomeStart grant you can combine these grants and use them all towards your property deposit.

Get on top of your credit rating

When the time comes to start applying for mortgages, a poor credit rating could be a massive obstacle. By then, it might be too late to repair the damage, so it’s important to find out now if there are any issues and take steps to fix them.

The first step is to check your credit report. If you find any errors (credit accounts you didn’t apply for, default records for payments you didn’t miss, or credit enquiries you didn’t authorise) you can then set about getting your record corrected.

If there are no errors on your record but your credit score is still low, you’ll need to start changing your habits to build up a better credit history.

Medium term preparations (in the months before you’re ready to buy)

Once you’ve saved your deposit (congratulations!), it’s time to start thinking specifics. Before you choose a lender and apply for a home loan, there are several steps you’ll need to take:

Work out how much you can afford to repay

There are several things mortgage providers will consider when assessing your home loan application, including your credit rating and your financial history. But the single most important of those criteria is serviceability – that is, how much free cash you’ll have each month to cover loan repayments, after all your other expenses are paid.

The lender will have their own formula for assessing this – in addition to considering your actual regular outgoings, they’ll deduct pre-determined amounts for the cost of dependents, etc. However, it’s crucial that you work out your own, realistic budget from the outset, so that you know how much you can afford to repay each month. Be sure to leave yourself with enough of a cash buffer to cope with emergency expenses.

Once you’ve worked out what you can afford in monthly repayments, you can use a mortgage calculator to figure out roughly how much you can afford to borrow. (Be aware that each lender will use their own criteria and have specific lending limits, so this is just a guide and not a guarantee of how much you’ll be able to borrow.)

Calculate your purchase budget

Once you know how much you can afford to borrow, you can work out how much you’ll have available to spend on your new home. Your borrowings will have to cover all your purchase costs, so you’ll need to calculate what those will be so you’ll know how much will be left.

  • Property inspections – before you buy any property it’s essential that you get both a building report and a Land Information Memorandum (LIM)
    • A building report is a thorough inspection of the property you wish to buy to identify any major problems such as poor building work, rot or decay, water or pest damage, etc. Ideally, you should have your inspection completed by a qualified member of the New Zealand Institute of Building Surveyors.

      Here’s a snippet of a sample building report.

      Sample building report before buying a home

      You could pay anywhere between $450 and $1200 for your building report, depending on the builder and the size of the house.

    • A LIM is a document you can get from the local council that will tell you everything the council has on its records about the property. While it won’t necessarily disclose everything, it should tip you off about important issues like unpaid rates, special conditions including NZ Historic Places Trust listings, and environmental concerns like potential erosion, subsidence or flooding.
      LIM (land information memorandum) sample

      The cost of a LIM varies depending on the council, but you can expect to pay between $250 and $400 (or more if you need it quickly).

  • Solicitor / conveyancing fees – many solicitors will offer fixed-fee conveyancing services. The fee may depend on the type of property you are buying and the purchase price, and there may be extra costs if there are complications – for example, if you’re buying a unit within a property owned by a body corporate. Expect to pay between $500 and $1200 for your legal advice.

    To find a lawyer and get information on all the legal issues involved in buying your first home in New Zealand, check out the government’s Property Law website.

    The home loan market is highly competitive these days, and some mortgage lenders will offer to pay your legal costs for you as an incentive to become their customer.

  • Mortgage costs – these will vary depending on the lender and mortgage product you choose. You may have to pay a one-off application / establishment fee, and/or an annual service fee, plus various charges for features like redraw facilities or transgressions like overdue payments.

    Although you won’t have to budget for them at this stage, be aware of other potential costs down the line, too – including break fees if you wish to terminate your mortgage early (for example to refinance your home), or settlement fees when the time comes to pay it out in full.

    To give you an idea of all the unexpected costs and charges you could face, take a look at this schedule of fees from Kiwibank.

  • Before you buy, you may need to get an official valuation of the property you are considering – for your own peace of mind, or because your lender requires it. The cost of a property valuation will vary depending on where you are, the size of the house and the individual valuer, but will probably be in the range of $500 – $800.
  • If you apply for certain types of loan, including the Welcome Home Loan and loans where your deposit is less than 20% of the purchase price, you can expect to pay for your banks lenders mortgage insurance.

    This is a policy that protects the lender if you have to default on your loan. It could run to several thousand dollars, and although you should be able to add it to your mortgage balance, this means you’ll end up paying interest on it.

  • Your lender will require you to take out property insurance on your new property, to protect their investment against damage or destruction due to disasters like fire, storms and earthquakes. The cost of insurance will depend on a number of factors including the type and value of your property and the level of risk in the area you are buying.
  • Mortgage protection insurance is an income protection policy that protects you rather than the lender. It’s not compulsory, but may be prudent in case you become ill or lose your job and need help covering your mortgage payments.
  • Utilities and rates. It’s easy to overlook them, but you could have to pay set-up fees to get your new home connected to utilities like power, internet and phone. You’ll also have to budget for ongoing costs including council rates, electricity and water, and body corporate fees if you’re buying a townhouse or unit.
  • Other moving in costs – don’t forget the cost of renovations, repairs or decoration, furniture and moving your possessions into your new home.

Once you add up all the costs you’ll face as a result of buying your new home, you’ll realise that you need to set aside several thousand dollars from your budget to make sure you won’t be caught short.

Choosing a mortgage

The next step is to decide which type of mortgage you want to apply for. There are lots of issues to think about:

  • How long do you want to borrow for?

    These days, the standard home loan term in New Zealand is a staggering 30 years. While borrowing for such a long period means that you’ll make lower monthly repayments, it also means that you’ll be paying a lot more in total, as your balance will reduce more slowly, and you’ll pay interest for much longer. If you can, opt for a shorter loan term to potentially save yourself thousands of dollars.

  • What sort of interest structure do you want?

    There are lots of variations when it comes to interest. Many lenders offer both fixed and floating rate options:

    • Fixed rates give you the security of knowing exactly how much you’ll be paying for an agreed period and protect you against rises in interest rates. The downside of fixed interest is that even if rates fall, your payments will stay the same – and you probably won’t have the flexibility to make extra repayments to reduce your balance more quickly.
    • Floating rates usually come with the right to repay your mortgage early and are often linked to offset accounts or redraw facilities, so you can minimise the interest you’ll pay while still having access to cash if you need it. The major disadvantage is that you’ll be exposed to rises in interest rates, which can have a big impact on your monthly repayments.
    • Some lenders offer ‘split’ or ‘combination’ mortgages where interest is fixed on part of the mortgage and floating on the other – offering you some of the pros and cons of both types.
  • How do you want to structure your home loan?

    Generally, home loans in New Zealand are structured as ‘table’ loans, where you’ll make regular, equal monthly repayments. Initially, the bulk of each payment will be interest, but over time you’ll repay more and more off your loan balance with each repayment.

    Alternative structures include:

    • a reducing, or flat loan, where you pay a fixed amount off the principal of your loan each month, plus an interest payment, which will cost much more up front but reduce the balance much more quickly so you pay less interest overall.
    • a revolving credit loan, where you have an agreed credit limit (similar to an overdraft limit) and you use your mortgage account as a transaction account (i.e. paying in your earnings and using it to pay your bills). You’ll pay interest, calculated daily, on the actual balance of your account, and your borrowing limit will reduce each month.
  • How much deposit do you have saved?

    To get a first home loan in New Zealand you can expect to need a deposit at least 20% – unless you qualify for a Welcome Home Loan or the other forms of assistance outlined above.

    If you don’t meet the Welcome Home Loan eligibility criteria and you have less than 20% saved you may still be able to apply for a low-deposit loan, but these can be hard to secure as lenders are constrained by government restrictions on ‘high-LVR’ lending.

There are so many issues to consider, and your choice can have a major impact on your long term financial position. It’s really important to get professional advice from an independent financial advisor, to help you structure your mortgage to best suit your individual needs and goals.

Once you know what sort of mortgage you want, make sure that you choose your lender and mortgage product carefully as fees and charges, terms and conditions can vary widely.

Getting ready to apply

Before you make an appointment with your bank or start filling in forms online, make sure you meet all your lender’s requirements and have to hand all the supporting documents you’ll need to supply.

This guide from Westpac will give you a good idea of the kind of information and documents you’ll need to provide – in summary, the lender will want to see proof of:

  • How much income you have
  • What you own
  • What other debts you already have
The mortgage application process

Once you have all your supporting documents available, you’re ready to apply for pre-approval. This will give you the peace of mind to start house-hunting, with a solid indication of how much money you can actually borrow.

With some lenders you’ll need to make your application face-to-face, either with a visit to the bank, or by making an appointment with a mobile lender who will come out to you. Many lenders, though, have an easy online process you can use to apply for pre-approval.

Although your approval will be conditional – the lender will still need to evaluate whether they are willing to lend you the amount you need to purchase the specific property you want – pre-approval will put you in the position to act quickly, and settle as quickly as possible, when you find your ideal home. If you want to be able to bid at auctions, pre-approval is essential.

When you’re ready to buy

Eventually, the day will come when you have your deposit behind you and your mortgage pre-approved. Now comes the fun part – finding your dream first house.

Choose your target area

There’s a good chance you’ll have actually been doing this for a while – but if not, get researching. The one thing you can’t change about a house is its location, so you need to be absolutely certain you’re buying in the right place.

Even within a suburb the character of individual streets can vary widely, and online searches can be very misleading. Nothing beats seeing a place for yourself, so get out there and walk around to gauge for yourself if it’s somewhere you really want to live.

At the same time, the online research is important, to give you the heads up on important issues like proposed developments or changes to the area, the crime rate, and what facilities (shops, schools, community service, transport) are available.

Of course, the ‘best’ areas are generally the most expensive, so you may have to make compromises – but rather than sacrificing location (or buying a ‘fixer-upper’ that you may never have the time or funds to fix up) you could consider buying a smaller house than you originally considered.

Decide what type of property you want

There are lots of different property types to choose from, each with pros and cons. Your ideal home will depend on your lifestyle and preferences, as well as your plans for the future.

First home - what type of home to buy
If you decide what you want before you start looking at specific properties, you can save yourself lots of time (and possibly some difficult decisions later on, when you fall in love with something that really doesn’t suit your needs!)

  • A detached home with a garden may sound idyllic, but you’ll be responsible for all upkeep – and do you really need that much space?
  • Townhouses and apartments often have body corporates that take care of all the maintenance – but you’ll pay for their services and may have to live by their rules and restrictions (check their rules about pets, for example)./li>
  • If you’re considering buying off the plan (i.e. a new development that is still being built), make sure you’re dealing with a reputable builder, and take time to research feedback from other customers

    Off the plan sales can be very exciting because you can often choose every detail from the fixtures to the finishes. But the finished product doesn’t always live up to expectations – and what will you do if construction falls behind schedule?

Know the market

When you start talking to agents, they’ll probably try to convince you to act fast and bid high. In a ‘sellers’ market’, where there are lots of buyers and very few properties, that may be necessary – but it often isn’t.

Take some time to research recent sales in the area, to find out how many properties have been put up for sale, how quickly they sold, and whether they sold for above or below the asking price.

Armed with this information you’ll be much better prepared for dealing with agents (although when it comes to making an offer for a specific house, your negotiating power will of course depend on how eager the owner is to sell).

Look at lots of properties

If you’ve been dreaming of owning your first home for a long time, it’s easy to fall in love with the first property you see.

But it’s also easy to fall in love with the second, and third, and fourth… To get a good idea of the range of properties available within your price bracket – and what constitutes good or bad value – you need to inspect as many places as you can. But be sure to stick to those that are within your price bracket.

Talk to lots of different agents and be careful not to give away too much information about your budget and what you really like! Remember that they are acting for the seller, and if they know you absolutely love a property, they’ll push for a higher price (and a higher commission for themselves).

Look carefully at the condition of the properties you visit, pay attention to any renovations or alterations that have been made and whether they improve or detract from the property. Observe, too, whether there are issues that come up time and time again in certain areas or types of property (damp, lack of natural light, pest problems etc).

Looking at lots of places is the best way to figure out exactly what you do and don’t want – and what a fair price is for the right place when you find it.

Buying your property

When you find the right property and negotiate a price, you’ll need to make a conditional offer, which will probably be subject to confirming your finances, a property valuation, and the results of your building inspection and Land Information Memorandum.

You’ll need to sign a written sale and purchase agreement – this is where you’ll need a solicitor or conveyancer, to check that everything is in order and to help you negotiate conditions – and agree a settlement day.

Before settlement you’ll need to make sure you have property insurance in place, and that you have inspected the property to make sure it’s in the same condition as when you made your offer (and that all the fixtures and fittings listed in the agreement are still there).

Your legal team will handle everything else, including making sure your mortgage lender has everything they need and that the money and keys change hands as scheduled.

That’s it – you own your first home! Congratulations!

For a more detailed overview of the home buying process, check out this guide from the Real Estate Authority, the independent government agency that regulates the New Zealand real estate industry.

Five first home buyers mistakes to avoid

Buying a first home is such a momentous occasion and one that should be full of joy, not worry. To make sure everything goes smoothly, be sure to avoid these five dangerous mistakes.

  • Underestimating your costs

    As we explained above, there’s a lot more to buying a house than the purchase price. If you fail to budget for legal fees, inspections, insurance and all the other costs of buying, furnishing and moving into your new home, you could end up in serious financial trouble before you even walk in the door.

    Once you’ve found out how much you can borrow, be sure to deduct all these costs (and give yourself a buffer in case of emergencies) from the amount of your mortgage loan. Then you’ll have a clear idea of how much you can afford to spend on a house.

  • Failing to get a professional inspection

    A lick of paint and clever lighting can hide a lot of issues, and even if you’re an experienced renovator, you can easily miss hidden defects like rotting beams, cracking walls or damaged wiring.

    Failing to get a professional property inspection

    You’re about to make the biggest purchase of your life so far – it’s absolutely vital that you know what you’re buying, so you don’t land yourself with a money pit you can’t afford to fix. A professional building inspection is an absolute must.

  • Failing to do your research

    The time to find out everything important about your property is BEFORE you make the offer – not once you’ve moved in. You need to be sure that the area you’re settling in has everything you need, so that you can happily stay put for a long time.

    1. Location – this is the one thing you can never change about your first home, so take your time and wait for the right property to come along. Consider buying a smaller house or a place that needs work (as long as you can afford it) rather than compromising on location.
    2. Facilities – how far will you have to travel for groceries, restaurants, entertainment? Are there decent schools and parks nearby if you have or are planning to start a family?
    3. Transport – if you will be relying on trains or buses to get around, make sure you know what services are available nearby. If you have a car and your property doesn’t come with a garage or car space, find out what the parking situation is like in the area.
    4. Neighbours – while neighbours come and go, it’s still important to get an idea of what to expect when you first move in. You could consider driving past at different times of the day and evening, to check whether there’s lots of noise (loud parties, barking dogs etc), or trying to chat to some of the other people in the street to find out what it’s like to live there.
  • Paying too much

    The right price for a house is the amount you’re willing to pay, right? Not always! When you find a place you live, it’s easy to get caught up in the emotion and end up paying more than the place is really worth – or worse, more than you can afford. Auctions are especially dangerous, because auctioneers are experts at building the excitement and playing on the bidders’ emotions to wring out the highest possible price.

    It’s absolutely critical that you keep a level head when it comes to negotiating the price of your house. Do your research before you make an offer, so you know what the property is really worth. Take care not to let the agent see how much you like it, or to give away your budget.

    Remember the budget you did right back at the start? You need to stick to it and keep your repayments manageable, even if the bank is willing to lend you more. Financial pressure can have a terrible impact on every aspect of your life, including your health and relationships – and there will always be another house.

  • Buying a place that needs work you can’t afford

    It’s all very well to grab what seems like a bargain because the property needs ‘a bit of loving attention’ – but renovations almost always cost more, and take longer, than expected.

    If you’re considering buying a place that needs work, make sure you get a realistic budget from a qualified tradesperson before you make an offer, and then be sure to leave a buffer for all the extra costs you weren’t expecting!

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