20% Deposit... Is this the end for the First Time Buyer??

Should the First Time Buyer (FTB) wait because they don’t have a 20% deposit? NOT AT ALL! Yes ANZ, National, ASB & Sovereign have limited lending to 80%, but this doesn’t mean the end or, a hell of a long wait, for first time buyer in New Zealand. In fact, this is quite possibly a blessing in disguise! There are always exceptions to the rules and these exceptions are what I am going to uncover in this post.

There are still a couple of ‘mainstream’ lenders out there (at the time of writing) that will lend 95%. The key to this is that they require the 5%, to be genuine savings, and they require the ‘deal’ to be fairly squeaky clean; i.e. clean credit history, stable employment etc.

With the 20% deposit issue, if you are in the situation where you had only saved 5% or 10% and you were thinking that you had to save for another year, or worse, longer; don’t worry, I have a few suggestions, but I challenge you to think outside the square. Why not look at the following options to secure your new property:

1. Borrow the shortfall from a further mortgage on mum & dads property that you pay for (yes this can be done and is of no cost to mum & dad)
2. Get a personal loan for the shortfall
3. Secure the new purchase against mum & dads property (again, no cost to mum & dad and no, this is not the same as option 1)
4. See if the vendor will look at leaving in the shortfall
5. Delayed unconditional or settlement day to allow you to save for the shortfall (this will give you the immediate motivation & deadline to save, save & save some more)

Some of these options will depend on serviceability, but they are options that shouldn’t be ruled out if you are really serious about buying a property. We don’t know how long these lenders are going to keep their LVR’s limited to 80%; it might be years or it might be months. If you were to look at option 2 for example and hypothetically the lenders put their LVR’s back to the standard 90-95%, you could possibly refinance the personal loan into the mortgage or of course, repay that personal loan. Either way, it’s a good option if you can comfortably service both the mortgage & personal loan.
If you are a buyer in the current climate, I actually envy you, as I personally am tied up for another year or so. The interest rates are now well and truly in the 6%’s, another couple of months might very well see them into the 5%’s – so on that, don’t go fixing in any longer than 6 months right now if you do decide to buy. For the first time in years, buying an investment property with a 20% deposit is generally coming out cashflow positive - before tax. If you are buying your first home as opposed to a rental – you might find that you could even be paying less with a mortgage, than what you are currently renting for, if you had a couple of flatmates assisting you with ‘border income’.
If you have any questions/comments about any of the information in this post, I’d love to hear them so feel free to comment away.
Furthermore, if you would like to discuss your own personal mortgage situation, please get in touch as I’d love to help!

Is it a good time to buy?

Well, a very interesting day yesterday - the Reserve Bank has slashed the Official Cash Rate (OCR) by 1% - fabulous news to home owners or people looking to enter the market as a couple of the leading banks have already reduced their fixed rates in light of the OCR drop; namely ANZ, ASB & Sovereign; the others will be sure to follow suit in due course.

So, the question that remains on prospective purchasers minds is.... Is it a good time to buy?

My first question to anyone who asks me this is - how long are you looking at holding this new property for? The answer to that is almost always "long term", and this generally means; 5 years plus in which case; what is going on right now in the current market will have been forgotten by then and potentially a good capital gain would have been made on the property purchased.

I want to have a look at the facts and also want to have a look at the speculation around this topic of whether or not buying now is a good idea:

FACT

• Rates have decreased quite significantly recently making money cheaper than it has been in a while
• Property prices have dropped
• Banks are tightening up criteria for higher lending deals i.e 90% plus – BUT, it’s NOT impossible – 100% deals are even still being approved.
  I strongly believe that if you are going down the 100% route; it is all in the way you structure your mortgage; 100% mortgages are absolutely fine if you buy an appropriate property and if you structure the mortgage in such a way that equity can be created in the shortest space of time.
• Buyers market is still very apparent.
  Meaning - first time buyers are not shoved out of the way like they would be in a booming market - they have time to make a comprehensive decision and act accordingly.

SPECULATION

• Property prices have bottomed out or have yet to bottom out
  Nobody really knows the answer to this question – are they going to continue on a downtrend or are they just going to stay stagnant for another 12-18 months?
• Banks will stop lending altogether for a period of 18 months
  I don’t believe this at all.
• Banks will call in existing mortgage debt
  I don’t agree with this at all.
• Interest rates will fall further
  Who knows, it seems to be looking like they will but have you got a crystal ball I can borrow because I dont' think anyone actually knows.

The Facts outweigh the speculation in that if property is something you want to get involved with, then it actually isn’t a bad time to be snapping up some bargains; but I must stress the importance of a long term hold.

What I am trying to get at with all this takes me back to my original question – how long are you in this for? If it is long term and let’s face it, property is usually and should be long term; then depending on the type of deposit that you have and your overall situation; you would structure the mortgage in a way that the risk of purchasing property in the current market is negated.

Credit Companies, School System or Individuals - who is to blame for credit debt?

There was a documentary on New Zealand's 60 minutes last night about a girl who had racked up $70,000 in credit debt on a $35,000 salary. While driving to work this morning listening to the radio, the presenters were taking calls on this topic and specifically referring to this documentary, and discussing how easy it is to obtain credit in this country, and the problem we face with ‘Generation Y’, that is fast becoming ‘Generation Debt’!

My question is – whose fault is this?

The credit companies for practically giving away credit and just making it too tempting, with 24 month interest free deals & 12 month deferred payments?

The school system for not educating kids on how to save and spend their money?

The parents of the Individual racking up the debt?

Or

The individual who racks up the debt?

I want to explore each a little....

Credit Companies
Why the HELL should the credit companies be at fault? Isn’t it their business intention to lure people in and sign them up on these deals so they can grow their business books? So in that case; my hats off to them, as they are obviously doing a good job! It is not their problem that people over extend themselves! However in saying this, I do agree (albeit after a bit of a debate); that the credit companies could have a bit more of a tighter criteria on who they lend to and how much they lend - perhaps a more stringent way of working out borrowing capacity.

School System
God knows I didn’t last at school myself and happily bailed out at the end of 6th form; but I honestly think a little bit of the responsibility does lie within the schools. In my opinion, perhaps a little less on the pointless poems & algebra, and a little more on budgeting, banking, realistic expected salaries and actual case studies on general living & expenditure, wouldn’t go astray!

The Parents
Ok, some of the responsibility lies here also of course. Are parents teaching their kids about money? Who knows, but surely NZ kids are learning the value of a dollar – it’s not rocket science after all.

The Individual
I was shocked while listening to the radio, that everyone ringing in and also the presenters, were blaming everyone (mainly the credit companies) but themselves. Is it just me or does that seem ridiculous!? Aren’t we all adults? Do people not understand that if you tick something up – you eventually have to pay for it?

So, in my opinion, whilst there is a little bit of blame on the school system & perhaps the parents; if you as the individual have excessive credit debt – isn’t this nobody’s fault but your own? The credit companies are just doing what they do best – lending money – it is not, I repeat, NOT their fault your credit debt has got out of hand.

I am not saying I’m perfect, I have credit debt myself – but I only have myself to blame for that.

New Zealand Property Investment Seminars in London a Huge Success!

My time in London is coming to an end with me flying back to Auckland on Thursday. I came to London on July 17th to carry out a series of four seminars. After the seminars were through we had to delay the flights home by 2 weeks due to the demand we had of people wanting to see me.

The seminars have been hugely successful and we have managed to help over 200 people of which 95% are kiwi ex-pats, who are looking to invest back home.

Book Launch - Young & Singles Guide to Property Investment

The night was a huge success and I am extremely greatful with the support that was just so apparent last night.

We sold approximately 40 books and had 55 people who attended.