A week ago one of my sons moved into his first home. What a fabulous achievement! Home ownership is a dream for many. The most important consideration before you buy is affordability.
In spite of recent price rises in our area because of the low cost of borrowing, home affordability in Hawkes Bay is amongst the best in the country.
The latest data shows that rent consumes 26% of a typical households take-home pay for the median rent on a three bedroom home. Instead it takes 25% to service the mortgage and related household costs on a home in the lower priced quartile. Assuming you can get the deposit together you are still better off buying a home than renting.
If you save 20% of your income, it will typically take three years to save a 20% deposit, as now required by most banks.
If it is your first home, you may qualify for the Home Start Loan Grant. Also after 3 years of contributing to KiwiSaver, you may be entitled to a first home deposit subsidy and the ability to withdraw your KiwiSaver funds.
If you’ve owned a home before, in some circumstances you may still be eligible for the first home deposit subsidy.
A good place to start is to contact a mortgage broker.
When considering whether to buy, do your numbers carefully. You don’t want to move into a home only to find yourselves under financial pressure. We can connect you with a reputable advisor who can assist you with this.
Here are some questions to ask when weighing up the affordability of a home:
1. How much deposit do you have?
The bank expects you to prove your savings record, and show that you have saved some money as a deposit toward your home.
2. Can you afford the repayments now?
The bank will look at your employment record, your income and how well you are managing your expenses. Get your credit card and hire purchase under control.
3. Can you afford repayments on 1 wage?
If pregnancy is not on the cards, this may not count.
4. Can you still afford the repayments if interest rates rises by 2 %?
If you can’t, then don’t buy. Interest rates may rise in a few years so allow for a 2% increase to be conservative.
If you can afford to buy, then go ahead. Don’t wait for the ‘right time’. Start enjoying the benefits of home ownership!
The benefits of home ownership include long term capital gain; feeling safe and secure; building up your asset base; and getting on the path to prosperity.
Finally, start out with a modest home, then trade up when you’re ready. Always keep your home repayments at a (conservative) affordable level.