For many people, trying to buy a house right now may seem impossible. Photo / 123rf
The going price for a typical first home buyer's house in Whanganui can be anywhere between $400,000 and $500,000, meaning the deposit needed could be as much as $100,000.
Reporter Jacob McSweeny talks to the experts to find some top tips to get enough together for a deposit.
For many people, the challenge of trying to buy a house right now may seem insurmountable.
According to recent OneRoof figures, Whanganui's average property value has gone up 31 per cent in just a year - pushing the deposit needed up by tens of thousands of dollars.
Recent amendments to the Credit Contracts and Consumer Finance Act (CCCFA) and a tightening of lending to people with less than a 20 per cent deposit have made getting approval for a home loan even harder this summer.
But Whanganui mortgage adviser Aaron Stampa has stirring words for those feeling shut out of the property market.
"Don't give up," Stampa says.
"The property market is a fickle beast, it can change overnight and we just don't know when that's going to be."
There was already speculation the market was slowing down, Stampa said.
Take Castlecliff in the December OneRoof figures from the end of last year - the suburb that had risen $100,000 in a year had only gone up 0.2 per cent ($1000) in most recent three months to November 15.
"Keep focused on your end goal, you will own a house one day," Stampa said.
"Make yourself mortgageable," says Stampa.
One of the best ways to convince a bank you can handle a mortgage is to show a proven record of saving.
To explain this, Stampa uses the example of two people trying to get a home loan with different spending habits.
"This person's got a good savings history, they've operated a good budget and their discretionary spending is very little or within budget.
"[Lenders] are going to want to lend to that person every day of the week versus the person that's got no savings history, great-grandmother passed away, here's a $100,000 gift as a deposit and they want to go and buy a house. But their discretion al spending is all up the wazoo and they've got no good behaviours with finances."
The bank is always going to lend to the saver and the good budgeter, Stampa says.
The Government's financial advice website Sorted says aspiring home buyers should set a target of how much they want to save for their deposit.
They recommend a 20 per cent deposit, which means if you're buying a $400,000 house in Whanganui that target should be $80,000.
A working couple who each have an established KiwiSaver account may combine their accounts to come close to that $80,000 figure.
Sorted also suggests if there's a difference between what mortgage repayments would be and what you're currently paying in rent, it's a good idea to start putting that amount into regular savings.
Mortgage Science financial adviser Martin Cloete said an almost invisible way to make savings is by increasing KiwiSaver contributions to beef up a deposit.
"Increase your KiwiSaver contribution to not just the minimum, but if you can do an extra 2 to 3 per cent on top of that, you're not going to feel that when you start working because you're not used to getting that wage.
"In the long run, especially if it's invested wisely, that's going to make a huge difference for your first home deposit."
The biggest expense for a lot of people trying to buy a house will likely be their housing costs or the rent they pay.
There is also a big opportunity to save money on that front, Cloete says.
"It's not the best but if you want to just kind of suck it up, go for cheaper rent - as cheap as you can - to try and put as much money away for the deposit.
"That actually works both ways because you're [growing] a deposit for the home loan and it also shows the bank you're willing to put money aside and you can actually save."
Both Stampa and Cloete say they know of cases where people live at home and don't pay any rent, which puts them in a fortunate position to save.
Everyone spoken to for these tips strongly recommended having a budget and sticking to it.
"A budget is also a great way to understand your spending and look for areas to save," Dustin Lindale from the First Home Buyers Club said.
Additionally, with the new CCCFA regulations, having control of your spending is going to help you when it comes to applying for a mortgage, Lindale said.
A good place to start when making a budget is by reading your bank statements, Mortgage Link adviser Moira Hart says.
"People will say 'well I don't get them anymore'. Everybody's got their transactions on their phones.
"Know where your money's going, don't just think you know where your money's going."
She said people are often surprised by how much they spend on what are often referred to as discretionary items such as takeaways and coffees.
Stampa says bank statements are a giveaway when someone is not ready for a mortgage.
"Particularly takeaways is the single biggest difference between our generations now and what our parents might have been [buying] back in the 70s and 60s. It blows me away ... you're seeing people spending easily, in Whanganui, $150 to $200 a week on takeaways."
Stampa said that sort of spending could be as much as $10,000 in savings a year if it was cut out.
"It's up to the individual borrower where they make that call, what's more important?"
Stampa says it takes grit and determination to fight back temptations and think of the bigger picture when saving for a home deposit.
"How much do you really need to spend? It is so easy to buy a coffee on the way to work or 'oh I can't be arsed making lunch, I'll just go and buy it'.
You need a realistic budget with a surplus, Whanganui Budget Advisory Service manager Sandy Fage says.
"This might mean cutting out a daily coffee or stopping a subscription or buying the 'cheaper' brand, which is just as good.
"How badly do you want to save? How committed can you be?"
It isn't easy, Fage said, with constant reminders about material items one can buy.
"We are constantly being bombarded by media – "You need this … Do you? Really?
"Stop and think. What are the priorities and what needs to happen to make them achievable?"
Extra tip: When doing your weekly grocery shop ask for the total bill to be rounded up to a figure you want to spend every week on food and extras like coffees, lunch out or alcohol.
The checkout operator will give you the remaining amount you have rounded your groceries up to in cash, which can be easier to stick to than using your card.
There is not a lot of point in saving if you are doing it at the expense of paying off high-interest debts, Fage said.
"Often is comes down to discipline and it can be over a very long time."
Hart says if you have debt it is not the end of the world, a plan just needs to be put in place to pay it right down.
She's had clients for up to two years before they managed to get rid of debt and get a mortgage.
Both Hart and Stampa strongly recommended against taking out loans for material items and cars if people are hoping to get a deposit together and obtain mortgage approval from a bank.
"Generally speaking, I'd say focus on getting rid of any large debts as that is going to count against your savings by lowering your borrowing amount," Lindale from the First Home Buyers Club said.
Where to get help with debt
There is a range of support services in Whanganui to help people deal with debt, such as the Whanganui Budget Advisory Service.
It offers "free confidential, non-judgmental budget advice" and people can visit the service at 183 Wicksteed St, ph 027 2433362; 06 345 3746 or email wbas@wbas.org.nz
Marton & Districts Budget Service Incorporated is another budgeting and financial support service for people in Rangitīkei - ph 06 327 4537 or 027 8722 477.
Tupoho Iwi and Community Social Services Trust help with budgeting in Whanganui - ph 06 345 2042.
The Whanganui City Mission also provides a budgeting service for those who find themselves in difficulty. The City Mission can receive and administer a client's money and pay off debts on their behalf. Ph: 06 345 2139.
Increasing the money you have coming in will help with boosting your savings towards a deposit.
Unemployment is low and workers are in demand so it is a good time to think about applying for another job or asking your current employer for more money, Stampa says.
"Review your career with what you're doing. Is that where you want to be, if you stay where you are will that lead to homeownership?"
Getting a second job is also a popular option.
Cloete says he's had clients who got second jobs or "side hustles" and the income of those gigs went straight into their deposit savings.
"I've had customers that do a full-time job but then they also have a side project or side income they start generating income through.
"A lot more people are moving to the online portals to generate extra income. A lot of the time that extra income they make is purely for their deposits. That's been quite successful for some of my customers."
"It's not really saving but it's pooling your deposits," Stampa says.
"If you've got a mate or a work colleague or something like that who is potentially looking to buy a house as well, pool your funds. If you've got 10 per cent deposit each, well 10 and 10 is 20, there's your 20 per cent deposit."
It doesn't mean marrying that partner - "all you're doing is helping each other out to secure a property", Stampa said.
He had been recommending that technique for some time.
"You've got to be pretty confident of who you're buying a house with."
Cloete agreed this was a good strategy.
"Even siblings buying together - using their KiwiSavers together to buy a house - that deposit then quickly racks up."
It helps with income and the serviceability of the loan.
An agreement needs to be drawn up before the purchase, Hart said. That ensures the two parties have a plan when one of them wants to get out of the agreement.
It is possible to get parents to use their equity to help with a deposit. But Stampa warns that could be too cumbersome, as the lender would want both the loan and the part of the deposit covered by the parents' property to be paid at the same time.
"You might have your mortgage split 90 (per cent) to 10 (per cent). That 10 per cent on the parents' property, that's got to be paid off in 10 years. The traditional mortgage on the new purchase - the 90 per cent - that's being paid off over 30 years.
"That can remove the deposit burden ... then it creates a problem on servicing, on affordability," Stampa said.
He said as a mortgage broker in the last four years he had successfully done one loan in which parents helped, out of about 20 attempts.
It is easier when parents can gift funds, Cloete says.
"As long as you can show the bank you are willing to save at least 5 per cent of the purchase price then your parents can gift you the rest."
Older parents often have equity in their house following recent house price rises they don't plan on using, he said.
"We're seeing quite a bit of that."
Something to think about
It is not easy now, but if buyers can get a house for less than $400,000 they could get a First Home Loan offered by Kāinga Ora, which only requires a 5 per cent deposit.
You will need to pay a Lender's Mortgage Insurance (LMI) premium of 1 per cent of the loan account.
A first home grant of up to $10,000 for couples buying a house under $400,000 is also available, but with many houses in Whanganui selling for above that they have been scarce.
The Government is reassessing the $400,000 cap for the first home grant and changes are expected to be announced in the first part of the year.
