in your best interests
Buying a new property is an exciting time. Banks are advertising great rates. Choosing the right bank is easy. Isn't it?...
Unfortunately, it’s not always as simple as it looks. For a lot of buyers, especially first home buyers, your first property may be purchased with a deposit less than 20% of the purchase price.
If borrowing more than 80% the advertised ‘special’ rates you see in the press may not apply to you. It is more likely that you will be offered the bank’s ‘standard’ rates (that are seldom advertised) and you may be subject to a Low Equity Fee or Low Equity Margin which can add a further 0.75%pa to your interest rates.
For those that have managed to save up a 20% deposit (or more) borrowing can be a lot less expensive. However, be careful not to immediately plump for the bank with the best advertised rate. Sure, it may look like a good rate but the very best rates are never advertised. These are the rates that an experienced mortgage broker sees daily, but the public don’t.
Engaging a mortgage broker gives you an advantage over the normal customer that deals direct with a bank. We know which banks to approach based on your circumstances, and we know what rates are achievable as we negotiate these each and every week.
As an example, one of the main banks is currently offering rates around 0.5%pa lower than their ‘special’ rates for the right deals. These aren’t advertised, so without a broker's’ insight knowledge you would never be aware of this.
The key to ensuring you get the best deal is to shop around - and that is where your mortgage broker can really add value. Our services are completely free, so make sure you contact us today to discuss your plans.
This is always a tough one to answer, but ultimately it comes down to your own preference and appetite for risk. You can effectively put anything you want as a condition, and you don’t have to proceed with the purchase if any of your conditions are not met satisfactorily. However, the more conditions you add in the less attractive your offer will be to the vendor, and the lower your chance of a successful purchase.
Common conditions used with an initial offer are as follows:
Registered Valuers Report (RVR)
Building Inspection - unless you are a qualified builder, or can bring one along with you, this would be a report I would highly recommend. Saving a few hundred dollars by not getting a report done may turn out to be a very expensive mistake if you buy a property that has ‘issues’ not immediately obvious to the untrained eye.
A Registered Valuer’s Report (RVR) is often a requirement of the lender, rather than a condition initiated by a purchaser. If you are borrowing over 80% of the property value then this will almost certainly be a condition of finance, and without the valuation report they will not approve funding.
Finance - if you don’t have finance approved by your bank then you need to include this clause. Buying a property without putting finance in place first is a very, very bad idea!...
Title check - your solicitor will do this for you. This is another ‘must have’. Making sure you are actually buying the land/property that you think you are is imperative!
LIM Report - a lot of people are unsure of the need for this. The LIM report covers off any relevant information the council has on a property. This includes consents, notices or orders affecting the land/property. Still not convinced? I recently had a client looking to purchase a property but thankfully discovered in the LIM that the building was never given its final Code of Compliance Certificate as the framework hadn’t been signed off by the council. A building inspection wouldn’t have picked this up and remedial work was estimated at $50k...They were very pleased they got the LIM!...
It is important that the wording of each of conditions states that the results be satisfactory to you, then only you can decide if the condition has been satisfied.
You may also have a house to sell as a condition of sale - this needs to be carefully worded in the conditions. This sort of condition usually includes a 'cash out' or 'escape' clause. These clauses allow the vendor to keep marketing the house until you go unconditional. If they get another offer before this happens the vendor gives you a specified amount of time (as per the clause) to go unconditional (usually around 3 working days) or your offer will be considered cancelled.
Another condition that can be used is 'due diligence'. This clause covers all the standard conditions and more, and can be used when you have unusual or sensitive conditions to cover off. Real estate agents are never keen on buyers with this clause as it is effectively a ‘get-out’ card and allows potential buyers to walk away from an offer at any point. However, from a buyer's’ perspective it provides considerable protection.
If you’re unsure which conditions to include then it’s best to discuss this with your solicitor. They can advise which clauses are necessary and which offer you the required level of protection.
We are asked about splitting loans a lot just now, and in general it is something we tend to recommend for our clients. However, it may not be right for you! Read on to find out the pros and cons.
A fixed rate loan has an interest rate that will not vary for a set period of time. For example, a 3 year fixed rate loan will not change over that period. No going up, no going down - no matter what is happening in the market.
This is particularly good when you are in a rising interest rate environment as you aren't affected by the increase during that 3 year period.
However, if you set all of your loan on a 3 year fixed rate (for example) when that fixed rate expires all of your debt will be exposed to the interest rates at the time. And therein lies the risk.
We are pretty much at the interest rate trough at present, which suggests interest rates are only going to go one way over the coming months/years - and that is up.
Repaying a nice 3 year fixed rate now is probably just fine, but repaying a higher interest rate (and therefore higher loan repayments) in 3 years time could be quite a shock to your system/wallet/bank account!
So, what's an alternative?...
For a lot of clients we find that hedging your bets is a great way to plan ahead. By hedging bets we mean not having all your debt in one fixed rate, but splitting your total loan across 3-4 different, smaller loans on different fixed rate terms with a 'dash' of variable/floating rate in there for good measure.
So why do this?
By staggering your fixed rate loans you can have funds maturing every 12 months for the next 3 years or so. This allows us to review your position annually, and make adjustments accordingly. It also means you aren't too exposed to any one rate/term and are protected should interest rates rise, but also remain flexible enough to take advantage of changes should rates fall.
Why Include a Variable Rate?
Variable rate loans add flexibility to your loan structure. Fixed rate loans can't be repaid too quickly or you will be stung with early repayment fees (booo!). However, by adding a variable portion into your structure you are able to repay this much faster should you want to, or are in a position to do so. For clients who receive bonuses, have extra cash some months etc this can be ideal and can get you ahead much quicker.
Sounds Good - So Why Wouldn't I Do This?
This structure works well for a lot of clients, but unfortunately this isn't a 'one-size-fits-all solution'.
Having loans maturing at different times does make refinancing more difficult as break fees become a lot harder to avoid. If your circumstances are likely to change significantly this method may not be the best way forward.
It is also slightly more complicated, so splitting loans should really be done with the help of a professional adviser. We can certainly assist here, so contact us anytime if this is something you'd like to discuss/consider.
As you can probably imagine there are a hundred and one ways to structure your loans, which is why it pays to engage a professional to help you. The wrong structure can result in some serious regret further down the line (emotionally and financially), but if you get it right it can save you loads over the lifetime of the loans.
Let’s be clear - not all banks are equal. At any given time some will have stricter lending policies than others, some will offer more attractive interest rates, terms and ‘cashback’ for certain deals etc. And this information isn’t advertised!
How, as the customer, you are expected to know which bank to approach is hard to fathom. Unless you have a mortgage broker in your corner of course!
By ‘employing’ (and I use that term loosely as the vast majority do not charge the customer for their services) a qualified, experienced mortgage broker you can take advantage of their inside knowledge. They may not be bank employees, but they are updated on the banks new policies, aims and criteria regularly - and this can really help ensure your application is given the best chances of approval.
A mortgage broker can ensure the your application lands on the right desk (of the right bank) depending on your needs/plans. They can also ensure you application is presented in the best light. It is in their best interests to ensure your ‘case’ is as strong as possible, and if that means fighting on your behalf then that’s what they’ll do. Is a salaried bank employee likely to fight on your behalf to the same extent? I doubt that very much!...
Mortgage brokers have built up relationships with all the main banks, and this is a massive advantage for the customer. How would you know if you are being offered the best deal if you only approach your current bank? An experienced mortgage broker can approach all of them - at no cost to you - in no time at all.
By having an experienced negotiator, who has seen lots of similar deals (so they know what can be achieved) you are putting yourself in the strongest possible position.
So, the first step is to engage a mortgage broker.
Key Elements for a Strong Application
Filling in a few forms is pretty straightforward, but if you’re not quite at that stage yet there are a few things you can do to ensure your application will be viewed as favourably as possible.
A great way to start the whole process is to touch base with us and let us know your plans. Whether you are months away from buying or you’ve just found the perfect house it is never too late to get assistance, and some expert advice.
Buying a house in Auckland has never been tougher. Prices have continued to rise at a very fast pace over recent times, making the dream of owning more and more difficult.
However, rather than dismissing the idea as unachievable it pays to contact an experienced mortgage broker as they can often find a way that you couldn’t on your own.
So how much do I need?
The standard answer to this question is 20%. Everyone rolls this number out like it is the only figure that works.
As an example, if you are looking to buy a property for $900,000 you will need to find $180,000 as your deposit. For a $600k property you’d need $120,000. These are scary figures for anyone starting out.
If you’re thinking you may as well give up now you wouldn’t be the first!
However, that’s taking 20% as the definitive answer. It’s not as black and white as that though.
The first thing to note is your deposit doesn’t just need to be cash that you’ve saved. KiwiSaver funds can be used if you are a first home buyer. Gifts from family can also be added into the mix to help bolster your deposit. Grants may be available too.
If you have family that already own a property they may even be willing to offer their property as extra ‘security’ and act as a guarantor. You can read more about guarantors here. Definitely worth considering!
The Banks and What They Don’t Tell You
The other key point to be aware of is bank policy. From time to time all banks tighten or loosen their lending criteria. Before you rush out the door to ask them though, this is never publicly announced. If you were to approach a bank directly they just won’t tell you.
They do, however, tell their better mortgage brokers....
Despite their websites, and adverts stating you need a 20% deposit it may well be that they are willing to lend up to 85%, or possibly even as high as 90% for certain clients. Achieving a $60,000 deposit is a far less daunting task than the $120k mentioned earlier!
Having an experienced broker on your side allows you to access this sort of inside knowledge - and act accordingly. For example, it may be that a bank will lend 85% for existing clients - so maybe it would make sense for you to suddenly become one of their clients?!...
The answer to how much you need really depends on a number of factors. The key point though is not to just take 20% as the final answer - it’s rarely as simple as that!
Make sure you have an experienced broker in your corner who can advise and direct you to the right lender, and walk you through the options to ensure your maximise your chances of an approval
Buying a new property, refinancing your existing mortgage or just getting some general home loan advice can be daunting, so searching out an expert makes a lot of sense.
Your property will almost certainly be your biggest asset (outside of your earning capacity) so you need to ensure you are dealing with a trustworthy, qualified adviser.
So what should your broker be able to offer you?
There are plenty of decent brokers to choose from in Auckland, but if you want to choose the best mortgage broker choose one that suits your needs - not theirs. At Auckland Mortgage Brokers we understand that finding the time to meet with a mortgage adviser can be difficult, so we tend to be more flexible than most and even offer a service that can be done online.
Unlike the main banks we can also offer our services outside traditional working hours, at the weekend, and without being tied to one bank.
You can check out some of our other services here.
At some stage you will need to decide which mortgage adviser to use, but the first step is to touch base and let them know what your plans are. It can be a scary prospect buying a new property - but we will walk you through every step of the of the process.
Using a guarantor can be a great solution if you are struggling to meet a lenders deposit requirements - but it can be a bit complex too. Brian, principle adviser at Auckland Mortgage Brokers, looks into the details for you.
As you can probably guess, each bank has a slightly different take on it, so your first point of action should be to contact us initially and let us know your plans. You can contact us here.
So how does a guarantee work?
Well, for those who can't quite manage say a 20% deposit banks may be willing to lend money if there is a little outside assistance (i.e. the guarantor). What normally happens is the bank (or lender) will secure a mortgage over your guarantors property in addition to the property you are purchasing.
The guarantee is normally limited to 20% (plus interest and charges in the event of default).
The banks put this extra security in place to mitigate any extra risks they perceive in lending to you. Banks aren't in the business of selling properties at mortgagee sales - but if something goes wrong they want to make sure they are well and truly covered!
It is normal for banks to require that you (the purchaser) can service the entire debt, but some may require that the guarantor prove they can service a portion of it too (20%). They may also require the guarantor to become a co-borrower of part of the debt.
Having a guarantor in place is fine for a while, but ideally you would want to have the guarantee released as soon as possible. For that reason it makes sense to have this set up for a relatively short period (say 2-5 years), after which you can refinance and have the guarantee released. During this period you (the purchaser) would reduce the debt sufficiently so the guarantee is no longer required, allowing the guarantee to be released.
Usually the purchaser(s) needs to prove they can service the entire debt. Some banks require the guarantor to prove they could service some of the loan (20%) and/or be a co-borrower of some of the debt.
For this reason the lender will require some financial information from the guarantor to prove they can actually cover the debt should you default. This may be a full application for some banks. Before a guarantor agrees to anything they should seek independent legal advice.
Security from a guarantor doesn't always need to be over a property. If, for example, your parents are happy to act as guarantors and have a large enough term deposit, this could be used instead. This can be a welcome relief for some guarantors as the thought of using their own home as security can be a little daunting...
Before you venture down this path it makes sense to contact us first to discuss. Use our 2min application form and we'll get back to you asap. If you haven't quite managed to save the deposit you'd hoped for yet then check out our info about the Welcome Home Loan and the Homestart Grant as these may ideal for you too.
IF SAVING FOR THAT DEPOSIT 20% DEPOSIT IT JUST TOO HARD WE HAVE A VERY WELCOME SOLUTION...A Welcome Home Loan allows you to borrow up to 90% of the purchase price of a property, making getting into your new home much easier than expected for those struggling to reach that elusive 20% deposit mark!
So, who is eligible for a Welcome Home Loan?
Welcome Home Loan has the following standard criteria. You will still need to meet the specific lending criteria of the participating lenders too by the way.
To be eligible you must be a New Zealand citizen or a permanent New Zealand resident (holding a 'Permanent Resident Visa').
Maximum Income Limits:
Minimum deposit Requirements:
You do still need to be able to contribute a minimum 10 percent of the purchase price of the house you are wishing to buy. This can be a gift, from KiwiSaver or from savings etc.
Maximum amount you can borrow:
The maximum amount you can borrow with a Welcome Home Loan depends on the region you are looking to buy in. Each region has a maximum house price cap that you must be within. The maximum loan amount available is therefore the house price cap less your 10 percent deposit.
The house price caps are as follows:
There are a number of lenders or providers who offer the Welcome Home Loan. Following a discussion we can help find the best, and most appropriate offer for you and your circumstances.
If you are a first home buyer, and have been contributing to Kiwisaver for 3 or more years you may be eligible for a HomeStart Grant of up to $20,000! You can read more about this scheme here.Homestart Grant - KiwiSaver Deposit Subsidy
If you're a little bit unsure about any of the above just let us know anytime using our 'Live Chat' feature (see bottom right of screen) or contact us here. We're here to help!
Helping You Into Your Home with the HomeStart Grant
If you are looking at a new home, and haven’t owned previously then the Homestart Grant could be just the thing for you. Brian, at Auckland Mortgage Brokers, takes a look at what it involves and the criteria that must be met.
For those who have been contributing for 3 years or more to Kiwisaver, the Homestart Grant (previously known as the Kiwisaver Deposit Subsidy) may be available to help you into your first home – whether you are building, or buying an existing property.
If you are purchasing an existing/older home, the HomeStart grant is $1,000 for each year of contribution to the scheme:
As you would expect there are certain conditions that must be met before you can receive a HomeStart grant. These include:
To be eligible for the grant your home purchase price must be within the following maximums:
You cannot own other homes.
For New Homes:
To be eligible the total cost of the home and land must fall within the following maximums:
Off the Plans: If purchasing off the plans then there must be evidence of a projected completion date, i.e. a signed contract
The house must be used as your primary residence for at least 6 months after the settlement date and you do not own any other houses.
You must have funding for the construction of the new home & the land or site must be ready to be built on.
Previous home owner?
If you have owned previously you may still be eligible for a HomeStart Grant if you meet certain criteria. Contact us today to find out more..
Here are a few tips and secrets that you should bear in mind when considering your new loan.
1. Save big time with a shorter term. The most common mortgages have fixed rates and a 20- or 30-year term. A 30 year loan of $300,000 at 6.5% will cost you a total of $382,633 in interest over the lifetime of the loan. If you were to reduce this term down to 20 years you would save yourself in the region of $145,000 in interest. Sure, your repayments will be higher each month - but if you can afford to pay an extra $340 per month (in this case) you can see it is definitely worth it long term!
2. Increase Your Repayment Frequency. Making fortnightly payments as an alternative to monthly payments, results in you paying half of the monthly amount 26 times per year - the equivalent of one extra full month per year. This will help shorten your loan term, and could save you tens of thousands of dollars over the lifetime of the loan.
3.. Points Make a Difference. You may not think that shaving an extra 0.1% off your mortgage would make a helluvalot of difference, but let's take a quick look at some numbers to see. Assuming we still have our $300,000 loan over 30 years (as above) and an interest rate of 6.5% you would pay a total of $682,633.47 to clear the loan over this term. Now, if your super helpful Wellington mortgage broker (yes, me!) managed to negotiate only a measly 0.1% discount you would still save over $7000 over the lifetime of the loan. And that's with only a 0.1% discount. That's $7,000 in your pocket and not theirs! Having a skilful negotiator on your side makes all the difference as you can see.
4. Having a Middleman on Your Side. As you know mortgage brokers are financial services firms that will help you arrange a mortgage. As we have great relationships with several lenders in the Auckland area we know from day to day what the rates are for each of the many types of loans that are available. We also know what each lender’s rules are for prospective borrowers. There are always nuances, so it pays to employ the services of an expert to assist.
We can help you understand the requirements and also help you fill out the forms, put together the necessary paperwork and submit it to the lenders. We get paid by the institution you place your business with, as we are bringing business to them (rather than them having to do this themselves). We essentially do the legwork for them!
Conditions will vary from client to client, of course, but using a mortgage broker should be a low- or no-cost option for you,
In Summary. Buying a house and establishing a mortgage are likely to be the biggest financial transactions most of us will ever make, so it makes sense to use as many 'tricks' as you can to ensure make it as pain-free as possible. The process can be daunting to even the most experienced, but if you do your due diligence/homework (and don’t go buying more house than you actually need) you can definitely prosper.
To discuss any of the points above, or to just touch base with Brian please click on our 'Live Chat' tab (bottom right) or use our Contact form here.