Our expert topic today is buying a house and Bruce Patten, a director of Auckland mortgage brokerage, Loanmarket describes what to look out for, what options you have and answers questions about buying a house.
Photo: RNZ / Alexander Robertson
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"The bank will look at what are you paying in rent plus your saving and is that ... rough equivalent to what a mortgage payment would be?
Patten said if the mortgage repayment went over that, then there would questions, "... especially understanding how expensive [the market] has got".
Nearly 65 percent of home buyers did their research online, he said, adding that was a good way to start.
"Only one in 20 people would have a budget when they come to see us."
Before signing the settlement papers, things to get ready would be a lawyer, and KiwiSaver funds which take about two weeks to be released.
To buy a $1 million house, "realistically" a first home buyer needs to have a minimum of 10 percent.
"If your income supports a borrowing on $900,000, then you can start there."
He said if a person's family or parent chipped in or became a guarantor for the loan, "they may become a co-borrower".
A pre-approval from the bank comes with conditions.
Allow another $5000 for lawyer fees, building report, valuation, LIM report, he said.
Going to auction
Most properties in Auckland and around the country were going to auction, he noted.
"You need to have everything lined up before you go and put your hand up at that auction. You also need to pay special attention to if there's any further terms of sale."
That could mean ew conditions around Covid, including if there was a lockdown, the settlement gets delayed.
Furthermore, if there have been major electric or plumbing changes "the bank might not be comfortable with that property as security".
He advised buyers to go to several auctions and open homes just to get a feel for the market and prices being accepted.
"If you don't do that research, you're flying blind."
At open homes, questions to the agents could include what's faulty with the property, buyers feedback and a price range.
Agents were bound to reveal whatever information they had, he said.
"When an agent tells you a price it is generally an estimate of where the auction might start because they don't know what the price is going to be. Don't take that as gospel. Do your own research."
There are plenty of online tools for buyers.
Since Covid hit, he said people were now reevaluating their lives and deciding to sell to move some place cheaper.
For people with pre-existing debts like a student loan, "for 90 percent, banks don't like any short-term debt that's greater than $10,000-$20,000, however they see student loans as education funding so they count that as a short term debt".
Buying leasehold
When buying a leasehold property, "you don't own the land, you only own the buildings on the land."
"The biggest pitfall is where the ground rent - that you pay each year - could go."
For example, if the ground rent was $10,000 for a certain number of years, when the lease was up for renewal that rent could go up to $20,000.
"Whatever the market value is will drive the lease."
However, he said a leasehold should not be confused with a cross lease, a perpetual lease which goes on for 999 years.
Bridging finance
Patten said unless a buyer had the ability to own both the current house and the next one, getting bridging finance was not easy.
"Nine out of 10 people would not get open bridging, which is where you haven't sold before you buy a new one."
He said it was especially important now that lockdown restrictions could result in a buyer having an extra-large mortgage.
One way around the Covid lockdowns was to include a settlement date three months out.
To buy a second property, a buyer needs 20 percent equity in the first property and another 20 percent in the second.
Listen to the full interview for more information on buying a second property, unit title properties or apartments, low interest rates, getting insurance, relationships with mortgage brokers and real estate agents, and purchasing as a single buyer.