Latest data shows that New Zealand house prices bottomed out in the middle of last year but are now showing some improvement in values, albeit only small in most areas.
If we’re at the bottom of a cycle, the next 6-12 months should be a good time to buy, an exciting journey that marks a significant milestone in life. It is filled with anticipation and joy, but it can also come with a hint of apprehension and stress, especially if you haven’t done some basic homework.
Buying a home requires careful consideration and planning. By understanding your preferences, setting a realistic budget and seeking guidance from professionals, you can navigate the home-buying process with confidence and find the perfect home for you and your family.
Decide what type of house to buy
Knowing what type of house you want might sound like a given but consider how many of us go “window shopping” or will “know what we want when we see it” when it comes to other purchases. Buying a house is likely to be the most significant financial decision you make, so it pays to put more time and thought into knowing what you’re looking for, more or less exactly.
Choosing the right type of house is pivotal. Your lifestyle, preferences, and future plans should all factor into this choice. Here are the different types of houses to consider:
Single-family home: Ideal if you value privacy, space and autonomy. With your own yard, driveway, and living space, you have the freedom to add value and personalise your home to suit your needs.
Townhouse or apartment: These appeal if you want low-maintenance living and access to shared amenities. These properties usually have a Body Corporate or Residents’ Association that handles insurance, exterior maintenance and provide amenities like pools, gyms and community spaces.
Multi-unit property: This could be a large home where an extended family live or a home with an adjoining or separate dwelling for family members or as a rental to help pay the mortgage. Note that to rent it out, it must be consented as a separate dwelling, and it does require you to manage tenants and the responsibilities that go with that.
Consider the location and neighbourhood characteristics that matter most to you. Proximity to schools, parks, public transport, shopping centres and job opportunities can significantly impact your life and overall satisfaction. Research crime rates, school ratings and property values in different neighbourhoods to find the right fit for your lifestyle and budget.
Get specific on your requirements
Write a list of what you want your ideal house to look like, including number of bedrooms, location, section size, garage, condition and any renovations you would be prepared to do. Put a lot of thought into your list and make it quite detailed. Next, break up your list into three columns: non-negotiable, important, nice to have. Unless you have an unlimited budget, you will have to make compromises and it makes it easier if you are clear at the beginning which of your requirements is non-negotiable.
Pre-approved financing
Before you embark on your home search, it is crucial to determine how much you can afford. Pre-approved financing gives you a clear understanding of your budget and strengthens your position as a serious buyer in the eyes of sellers.
To get pre-approved, you will need to provide detailed financial information to your lender, including income, assets, debts and credit history. Based on this information, your lender will determine the maximum amount it is willing to lend you for a mortgage. I generally advise people to talk to a mortgage adviser rather than directly to a bank. They have a lot of expertise and can guide you through which lender and mortgage structure will serve you best.
Understanding your ongoing financial commitments
Now that you know how much the bank will lend, you also need to consider how much your regular mortgage repayment commitments will be. Interest rates are about 7% for fixed rates, and the banks test your borrowing capacity at approximately 2% higher than that. This means that if you can afford the mortgage at the current high levels, the repayments should be manageable (notwithstanding life events like a job loss). It was obviously problematic when interest rates were 3% and now they have more than doubled to 7%.
In addition, you will need to allow for the annual cost of insurance, maintenance, rates, and/or Body Corp or Residents’ Association fees. Also, there will be upfront costs associated with your purchase: legal fees, building inspection and valuations.
Shop for your home
So you have completed your preliminary groundwork, but now the real search commences. Browsing online and visiting open homes are excellent initial steps. Real estate agents can offer invaluable assistance and frequently have information about unlisted or forthcoming properties. My foremost advice is to articulate your preferences clearly; effective communication is key. Be polite and professional. By doing so, most agents will gladly undertake the bulk of the legwork on your behalf. They will give you good feedback on how realistic your wish list is for the budget you have and will guide you through the buying process.
This is the second in a four-part series on building a secure financial future running on the listener.co.nz in March and April.
Lisa Dudson is an investor, entrepreneur, and author of 8 bestselling personal finance and property investment books. She has been a media commentator on financial issues for more than 20 years and is known for her pragmatic, meaningful and easy-to-understand financial advice. She is a director and shareholder of Saturn Advice and National Capital and provides financial and property advice through her consulting business www.acumen.co.nz
