Guiding the First-Time House Buying Process
As we sat around the dinner table, my 17-year-old son started shovelling food down his throat. The sight was almost as unpleasant as the noises he was creating! “Mate,” I said, “Slow down! That’s revolting. If you carry on, you’ll never attract a girlfriend, get married and want to leave home.” To which my wife, of all people, said, “But I don’t want you to leave home!”
I don’t know about you, but I think that I have done my duty. We have raised two great kids. They graduated high school and are now at Uni. They have part-time jobs and no student debt. The next logical step is to guide them into their own home, so that my wife and I can enjoy becoming empty-nesters. The trouble is that the real estate market is going crazy! Interest rates are falling and house prices are rising.
According to the latest data from the Real Estate Institute of New Zealand, median prices for residential property across New Zealand increased by 32.3% from $620,000 in May 2020 to $820,000 in May 2021.
On average, a property in Auckland will be on the market for only 32 days before it is sold! With a lack of stock, it becomes important that if you want to join the property ladder, you approach the market ready to move quickly. To do this, you want to be pre-approved before you go to an Open Home. Yet, it can be challenging to know how much to offer. In this article, I’d like to give you hope and the top four tips for your tamariki to get them on their way….
1. Join Kiwisaver.
If your tamariki are working, make sure that they set up a Kiwisaver account. This becomes a compulsory savings account for them, something that the bank will consider as evidence that they can save money.
When it comes time to buy their first home, the government has put aside some attractive grants through Kainga Ora. They may qualify for as much as a $10,000 First Home Grant per person. But wait, there’s more… That could equate to $20,000 for a couple, which can be used
towards their deposit. Obviously, T&C’s apply, and you can find out more by visiting https://kaingaora.govt.nz/.
2. Keep a clean credit history.
Today, retailers use “After Pay” to tempt people to buy now. Back in my day, we called it ‘layby.’The difference is that we had to pay up in full BEFORE we bought the product. With After Pay, having monthly payments of only $20 may seem convenient to our kids, but if they miss a payment, it’s reflected in their credit history. Banks look for good financial character with every applicant. One measure to that end will
be their credit score. A $20 missed payment is given as much weight as $2,000. (If you want to see what your credit rating is for free, go to https://www.creditsimple.co.nz/.) Teach your tamariki how to set up an automatic payment on their Internet banking app or at least create a reminder to pay the loan off at least two days prior to its due date.
3. Start a budget.
This is the least popular suggestion that I have, but the most practical. If young people know how to set a budget, they can put a plan together to start saving. To help people get started, I have access to a simple budgeting tool that you can download here: https://bit.ly/fhbuyer
4. Look for fragments.
Currently airing on TVNZ1 is a programme titled, “Eat Well for Less NZ,” which encourages families to replace brand-name products in their weekly shopping for the house brand. The savings are merely fragments, when measured individually. But when accumulated, they can be staggering. Using the same principle, what if your tamariki cut out that cup of coffee and a muffin that they eat every day? They
can easily substitute that with a can of V and a pie, which is essentially the same! They would save an average of $8/day times 5 days/week. That’s $40 each week. If they put that aside, by the end of the year they would have saved $2,080! What is the cost of a new Kiwibuild home? In Auckland, it is capped at $700K. How much deposit do they need? 5% = $35,000. If they had $20,000 in First Home Grants (as a couple) they would only need to find another $15,000 in savings. Soon you could be an empty-nester…