First home buyers
Get into your first home without the stress. We'll arm you with all the info you need, help you steer clear of the traps and sort you out with the best possible deal from the bank. Buying your first home can be tough without help. That’s where Squirrel (wink emoji) comes in handy. We’ve built our entire business around making sure the house buying process runs as smoothly as possible for you. Leaving you to get on with other stuff, like planning your first BBQ.
We do a lot more than most because we understand that you’ve got other things on your plate. Plus, our advisers are on a salary. That means they won’t force you into a loan you don’t want or can’t service because they are unbiased.
What else we do to make the house buying process easier for you:
- Help you figure out how much you can afford to borrow
- Work out where to buy your first home
- Access property reports on potential homes
- Help arrange inpections and valuations
- Look over your LIM, Sale and Purchase agreement and building inspection reports
- Get you a great deal from the bank and the best structure for your mortgage
Some useful tips to bear in mind
There's a lot to take in before you get started, so here are our top tips to get you underway.
Get your ducks in a row so you can jump on the right deal
If you’ve got all the legal and financial stuff sorted early you’ll get in first on the great properties. Almost makes you feel sorry for everyone else. Almost.
Interest rates aren't everything
When we’re talking hundreds of thousands of dollars, a fraction of a percent change in interest or repayment rates can save you a packet. Having said that, life’s not all about money and sometimes it’s better to go with the lender that works for you long-term rather than saving some dollars in the short-term. We can help you make the right choice.
The banks will do anything to make you choose them
Don’t fall for their free-tv-cash-back-free-groceries-for-a-year trickery – choose the right mortgage, and you’ll be able to buy your own TV.
Try living with your mortgage before you buy
To give you an idea of what you can afford in real terms, try setting up a bank account so that your savings (+rent) equate to your probable mortgage repayments. You’ll find out pretty quickly if you can cope or not.
Here are some of the questions we find ourselves answering pretty often:
Free TVs and cash in the hand seems like a sweet deal. Don’t be fooled though, there’s more to this decision than which room you should turn into a cinema.
If only you didn’t have to pay those pesky mortgage payments. You’d have more money for a boat! With some simple smarts, you can get mortgage free faster.
Good advice and a ton of experience. We help you through the whole buying process (not just the mortgage). Property will be one of your largest financial investments. When it goes wrong, it can go horribly wrong! Mortgages (and helping people like you buy property) are what we do – so we know all of the things to look out for. As mortgage advisers we also have more options available to us when it comes to finding a mortgage solution. Lenders have very different credit policies. By only talking to one lender you are potentially selling yourself short and getting a poor deal. Why take the risk when our service to you is free?
For mortgages over $100,000 our service to you is free. For a standard mortgage we are paid an upfront commission of between 0.45% and 0.85%, which varies slightly by lender. Some of the lenders also pay us a small trail commission of between 0.15% to 0.25% per year to provide ongoing support to you. This commission is before our own costs and is also used to pay for any of our promotional offers to you. Squirrel Advisers are salary based and earn the same incentive regardless of which band they place business. Non-bank lenders (which we may use for credit impaired deals or commercial/development deals) will generally incur a cost to you as the client as these lenders do not pay commissions. This fee tends to be between 0.50% and 1.00%.
Low-documentation (low-doc) mortgages have a lower threshold for proving your income, but in the current market we’ll still need to see good proof of income coming through your bank statements. With a low-doc mortgage you sign a declaration of your income. This can be a really good option for self-employed people, especially if they have been in business for less than two years. The maximum loan for low-doc is currently 70% of the property value. This type of lending is not the cheapest and will usually be 1.00% - 2.00% higher than the standard bank rates.
Jess had a good deposit but as her successful business was relatively new, there were challenges getting finance approved. Squirrel sorted everything out, but over the next 6 months the Auckland property market got the better of Jess. She missed out at so many auctions she gave up and started searching for rental properties instead.
An auction is where you get into a room and yell about buying a house. If you win, it’s considered an unconditional purchase, so you need to do all of your due diligence homework beforehand. The real estate agent will have given you a copy of the sale and purchase agreement, title and maybe the LIM report. You may need to do a building inspection and valuation. This can get a wee bit expensive if you keep bidding at auction, so it’s best to be choosy.
You’ll also need to register your interest in the auction before the day and be able to front up with a 10% deposit if you win.
- Register your interest with the agent before the day
- Agree any changes to the deposit or settlement day with the agent before the auction
- Have your solicitor check the title
- Get your finance fully approved
- Read the LIM report and do any other due diligences
- Do a building inspection or valuation (if required)
- Arrange your 10% deposit (check out our page on deposit bonds for help with this)
This is when properties are advertised with a price, a price band or by negotiation. You make an offer on the property and negotiate with the seller on price.
A tender is like dating. You put in a written offer with a specified timeframe and the vendor considers your offer alongside others. You can put conditions on the offer but this might make it less appealing than others.
A private treaty is buying by negotiation and lets you put conditions into the sale and purchase agreement.
Private sales are the same as Private Treaty but are worth covering separately because you’ll be negotiating directly with the vendor. Because no one will be managing the process and spotting the issues early there’s more chance that something will go wrong. If you buy privately you’ll need a registered valuation and should have your solicitor check the agreement before you sign. The alternative is to insert a solicitors’ clause, which is like a Get Out of Jail Free card – if the solicitor’s not happy, you have three days to get out of the agreement.
Sale and purchase agreements
Once you find a place you want to buy you’ll need to sign a sale and purchase agreement. This is basically just a template where you can insert your own purchase conditions. We’ve outlined the main conditions below.
- Subject to finance – generally 5 to 10 working days
- Subject to building inspection
- Subject to LIM report
- Subject to solicitors approval – 3 working days (insert this if you are not confident about what you are signing)
Another popular condition is a due diligence clause that gives you full control on the purchase process – unsurprisingly, this isn’t nearly as popular with agents as it is with buyers. Remember though, this is a legal contract and the point of no return; once you go unconditional you’re committed to purchasing the property. It’s mostly not as ominous as that sounds.
- Finance date – 5 to 10 working days from offer date
- Settlement date – the day you take ownership of the house
Paying the deposit
You might find that you don’t actually have the deposit available when you buy a property. Rather than searching down the back of the couch to make up the difference here are the rules and the process you should follow:
The amount of a deposit is completely negotiable.
Auctions are set at 10% deposit, but you can negotiate with the real estate agent before the auction if you don’t have it on hand. Agents and vendors will want as many bidders as possible at the auction so will generally agree to a lower deposit.
With private treaty (by negotiation) sales you set the figure when you sign the sale and purchase agreement. 5% is usually enough. With bigger purchases you can usually cap the deposit at a set amount, say $25k, which is pretty handy.
When is the deposit paid?
You normally agree to pay the deposit once the sale goes unconditional. Occasionally real estate agents ask for the deposit upfront but this isn’t all that common.
Although it is best to pay the deposit on the day you go unconditional, this is often not possible because of the amount of paperwork required to get temporary facilities in place. If this is the case, you can go unconditional and just let the agent know that the deposit will be paid within 48 hours.
Always check with your solicitor – you have three working days from being served notice (by the vendor’s solicitor) to pay the deposit. This means you have at least three working days from going unconditional to pay it. That’s enough time to search through a few couches – or set up alternative arrangements.
Remember: The KiwiSaver rules changed recently to allow the early release of funds to be used as a deposit. This needs to be managed through your solicitor and is worth getting underway as early as possible.
How do I get a building inspection and valuation?
Once you’ve signed a sale and purchase agreement we can arrange for a building inspection and valuation and have these available for you before going unconditional.
What is a LIM report?
A LIM report is prepared by the council and is based on its property records. It will tell you whether or not the property has the right consents and a code of compliance. You’ll have to order a LIM report from your Council, which will cost around $250-$350. It often takes up to 10 days to get it too, so order as soon as you’ve signed the sale and purchase agreement. Or if you like looking at heavy documents you can check the council’s property file yourself.
Choosing a lawyer and signing contracts
Your lawyer is a necessary evil in the house-buying process. You’ll find there’s a huge difference in quality of service, advice and cost from all the lawyers out there, so it’s really a question of what you need.
If personal service is important then pay extra and go to a reputable law firm. There are also a number of low cost transactional services available, which work great if you’re an old hand and don’t need lots of advice or reassurance.
Your lawyer will confirm that you would like to go unconditional with the vendor, check that the title of the property is clean, run through the mortgage documents with you, and settle the funds.
If you are outside of the city or overseas, they’ll courier the mortgage documents. You’ll need to sign them in front of a Justice of the Peace or Public Notary. For non-residents you don’t need to come to New Zealand to buy property – just allow enough time for us to send the paperwork back and forth.
Your first mortgage
To arrange finance you can apply online now, or call us seven days a week on 0800 21 22 30
Sorting out the financial stuff is different for everyone and our advisers will help you find the right solution, but here’s some useful information if you fancy a bit of background reading.
Different types of mortgages
Getting your mortgage structured correctly is one of the most important pieces of the home buying process. Getting it wrong can cost you thousands over the term of your loan. Luckily, this is what our advisers are great at. We’ll take your lifestyle into account and figure out what’s going to work out best for you.
We’ll explain it all to you, but if you want to get ahead on some of the jargon, here’s a quick breakdown.
Maximum mortgage term
The maximum term for mortgages is generally 30 years. It can be set up on a reduced term as well if suitable (and we recommend this where possible).
Loan payments can be made weekly, fortnightly, or monthly (depending on the bank) but from our experience it’s best to pay your mortgage as often as you’re paid. Paying more frequently can result in slightly lower interest costs but this varies between banks. Our staff can advise more on this.
Interest only terms are available to customers in most instances, provided they have an equity position of 20-30% of their current property value. The interest only terms can vary depending on the lender to a maximum term of 10 years.
Fixed rate mortgages give you certainty; you’ll know what your repayment amount is for a fixed term of between 6 months and up to 10 years with some lenders. Even if interest rates go up or down you pay the same, so you could miss out on savings, or avoid paying increases. If you repay a fixed rate early (like if you sell the house) you may end up having to pay early repayment fees.
This mortgage type is generally way over complicated and not very common in New Zealand. Essentially you get a floating rate that is capped in the event that rates go up, but you pay a higher rate for that privilege.
Floating rate mortgages give you more flexibility to pay your loan off faster. The rate can go up and down at any time but this movement is closely tied to the official cash rate. With a floating mortgage you can pay it off as fast as you like without fees and some banks let you redraw funds if you have repaid more than their minimum requirement.
This is essentially a giant overdraft on your transaction account where the overdraft is at floating mortgage rates. As long as you can resist the temptation of using all that credit for fun things like shoes and holidays, there are a couple of great benefits:
- It’s better to throw all of your savings at the mortgage and have undrawn funds in a revolving credit which reduces your interest payable.
- Gives you easy access to funds and can smooth your mortgage if your income is lumpy or irregular. Can be a great option for self-employed/contractors or if you’re planning a family.
An off-set mortgage gives you similar interest savings to a revolving credit, but rather than having to put your surplus funds in one pool lets you use up to 10 different savings accounts to off-set the balance on a floating loan linked to those accounts. This product is great if you like to keep separate accounts for different purposes such as holiday savings, renovation savings, new shoes savings.
Low equity fee or margin
If you need to borrow more than 80% of the purchase price of your new home, banks will charge you either a low equity fee or a margin.
Both kinds of fees have plusses and minuses, and in a competitive market we can often negotiate to get them discounted as part of an overall deal.
Low equity fees
A low equity fee is a one-off charge, which can be added to your mortgage so you don’t have to cover it up front. The advantage of a fee is that you pay it and move on.
|ANZ||0.25% - 0.75%||2.00%|
|Kiwibank||0.25% - 0.50%||0.80%|
Low equity margin
A low equity margin is added to the mortgage rate and stays on the mortgage until you’ve gathered enough equity in the property. If you’re able to pay off the loan quickly or get additional value into the property through renovation, this can be much less costly than a one-off fee. Most often, you can't remove the margin until your fixed rate is due which means that even if you happen to drop below 80% LVR you can't remove the margin unless you break your loan (which may incur break costs). The only exception to this is BNZ who will remove the margin mid fixed term.
|ASB||0.30% - 0.75%||1.30% - 1.50%|
|BNZ||0.35% - 0.75%||1.00% - 1.15%|
|Westpac||0.25% - 0.75%||1.00% - 1.50%|
How much will the fees cost me?
This table compares the low equity fees from different lenders over the lifetime on a $400,000 loan, with a $30,000 deposit with 5.0% inflation and no property inflation.
|Lender||1st year||Life of loan with 5% price appreciation||Life of loan with no price increase|
With a pre-approval you haven’t borrowed any money or bought anything yet – it’s just the bank saying they’re happy to lend to you under a few conditions – normally this is a valuation on the house you’re thinking of buying. A pre-approval is a great way of getting ready to snap up the right house when you find it – you’ll know how much you can borrow and be in a better position to negotiate.
It normally takes less than three days to arrange finance but it pays to get organised ahead of time. Every now and then, the banks can be a bit slow, especially if the mortgage is over 80% of the property’s value. So, if you are borrowing over 80%, allow for 5-7 working days to get an approval. Bottom line is, the earlier you talk to us and get things rolling the easier it’ll be for all.
Quite a bit, but we try and reduce it for you. First you have to fill out a form with all your assets, debts, income and expenses. You’ll need to prove your income, that you have a deposit saved and three months of bank statements. The bank and your Squirrel mortgage advisor might also run credit checks.
Short answer: probably. Lending criteria is different from bank to bank so we’ll help you shop around for the best deal. If you go direct to your bank you’ll have less chance of securing the right loan (or any at all) because they can only give you one solution.
Yes, if you have a good income and no other debts. Below 80% you can borrow 5x your income. At 90% you can only borrow 4x your income because the lender will make you pay off your mortgage faster.
Borrowing over 80% also costs more. The bank will either charge you a low equity fee of up to 2.5% of the mortgage value or they’ll add a premium to your mortgage rate which will be 0.50%-1.00% more than a standard rate. The fee can be added to your mortgage so you don’t need to find the cash right away.
A registered valuation will also be compulsory, which will cost around $500 and you’ll need ongoing mortgage or income protection insurance. One of our insurance advisers can help you organise your insurance.
If you’re self employed or a contractor there are a few more hoops you’ll have to jump through. To borrow over 70%, you need to have been doing what you do for more than two years and have a record of your earnings. If you have low expenses and work in an industry that regularly uses contractors, like project management, IT or film, the bank will be more flexible, but will still usually need a 15%-20% deposit.
If you have less than a 20% deposit your family can guarantee the difference. This is limited to a maximum of 20% so Mum and Dad won’t risk losing everything if you fall over.
Essentially it’s putting two mortgages in place. The first is for 80% of the property, with a small second mortgage for a further 10%. This can be a very cost effective (and flexible) way of borrowing. We still do second mortgages but the market has become a lot tougher.
Vendor finance is where the seller leaves equity in the property (as a second mortgage.) It is a loan that you’ll have to pay back. Ideally the vendor finance is charged at a market interest rate. Vendor finance is trickier and only really works for people with no deposit but high incomes and no other debts.
The maximum amount that can be borrowed for apartments, townhouses, and lifestyle blocks is 80% of the property value. With bare land it varies between 70% and 80% depending on the lender and location. Lifestyle blocks must be less than 10 hectares.
If you are building a new house you’ll find most lenders will only go up to 80%, but we can often sort you out with up to 90%. With a new build you should get a fixed price contract with a master or certified builder so their work will be guaranteed.
Before the mortgage is fully approved you will need to get a registered valuation. Then along with the builder and the lender, we’ll work out when progress payments will be made during the build. At each stage the bank may ask for an updated “as is” valuation. This is them checking that you haven’t blown the budget – you’ll need to stay below the lender’s loan-to-value cap (generally 80%) throughout the build.
Most banks lend against the project cost. Sovereign is a bit different and lets us use an acquisition price that makes allowance for “reserves” and interest capitalisation. This makes them a good choice for these types of mortgages.
If you’re a non-resident you’ll only be able to borrow 70% of the property value. If you work in NZ but don’t have permanent residency your maximum borrowing will be 80%.
1. Poor account conduct
This is when being silly or forgetful with your money can come back to haunt you. Your home loan won’t be fully approved until the bank has seen your bank statements. Dishonoured direct debits or going into unarranged overdraft can make you look like a risky prospect and you could be declined.
2. Looking in all the wrong places
A number of first home buyers start their hunt looking at properties (and going to auctions) well above what they can afford. Eventually they get buyer fatigue and end up buying the first thing they can, which is never a great way of approaching it.
3. Putting offers on the wrong houses
If a place seems too good to be true, it usually is. Do some basic checks yourself before getting an inspection – look under the floor for dampness or rot and look for repairs.
4. Check everything works
A building inspection will throw up structural issues with a house but will miss the small stuff. It pays to check that everything works – heated towel rails, spa pool, dishwasher, dryer, drains, electric door to hidden lair, hot water, central heating, fans, and oven.
5. Not allowing for upfront costs
You will have between $1,500 and $3,000 of upfront costs when buying property. Make sure you factor this in to your budget.
6. Under estimating borrowing costs
Banks will approve you for more than you can reasonably afford. It is important to have a realistic budget and to plan on higher interest rates. Putting your head in the sand simply creates problems later.
7. Changes in circumstance
8. Paying the minimum
If you only pay the minimum you will not get ahead and your mortgage costs will increase when rates go up.
9. Choosing the lowest rate
The lowest rate is often not the cheapest option – they can often come with hooks and hidden costs.
10. Buying “interest free” stuff for the house
Once you have a mortgage it gets harder to repay other debts. Although a hire purchase might be interest-free (and you might absolutely need it for your kitchen) at some point it needs to be repaid and will then impact on how easy it is to live with your mortgage.
Maximum mortgage term
The maximum term is generally 20 years for mortgages over 80% of the purchase price and 30 years for mortgages under 80%.
Most banks allow fortnightly and monthly mortgage repayments. The best idea is to pay your mortgage as often as you’re paid – it’s not true that you’ll pay your mortgage off faster by paying fortnightly.
Interest-only terms can be for 5 or 10 years depending on the lender. Typically this option is only available to mortgages under 80% of the property value or purchase price.
Fixed rate mortgages give you certainty; you’ll know what your repayment amount is for a fixed term of between 1 and 5 years. Even if interest rates go up or down you pay the same, so you could miss out on savings, or avoid paying increases. If you repay a fixed rate early (like if you sell the house) you’ll end up having to pay early repayment fees.
This mortgage type is generally way over-complicated and not very common in New Zealand. Essentially you get a floating rate that is capped in the event that rates go up.
Floating rate mortgages give you more flexibility. They can go up and down at any time but this movement is closely tied to the official cash rate. With a floating mortgage you can pay it off as fast as you like without fees and easily redraw funds if you have already repaid more than you need.
This is essentially a giant overdraft on your transaction account where the overdraft is at mortgage rates. As long as you can resist the temptation of using all that credit for fun things like shoes and holidays, there are a couple of great benefits:
- It’s better to throw all of your savings at the mortgage and have undrawn funds in a revolving credit.
Gives you easy access to funds and can smooth your mortgage if your income is lumpy or irregular.
Agree with this view or not there is no doubt that the process of house shopping is a challenging time; made worse when the market appears to continue to favour sellers, with buyers having to act quickly to secure a purchase.
So what tactics can you use to become that smart buyer who has the upper hand? It’s a competitive world out there and only the tough survive, or in property terms, only the smart ones walk away with the right house at the right price.
Firstly – be first!
Make sure you are up to speed with the market as it moves day-to-day. Subscribe to email alerts from Trade Me Property and Realestate.co.nz and read them when they come in. If you act, you can be ahead of the game and make sure you have that extra time to undertake the due-diligence required on a property even before the first viewing. So much researching can be online, it's as simple as searching the address on Google.
Don’t wait for the first open home.
Call up the agent and be forward, state your desire to view the property. Don’t be put off by talk of waiting to queue up with all the others at the weekend. If the property is on the market, then it should be ready to view.
Acting in this forward manner may be the opposite of what people tell you in ‘not being too keen and hold your cards close’, but being assertive can be a powerful tactic, it can de-stablise the meticulously planned campaign and programme of the agent!
Another aspect of being that smarter buyer is to make sure you have all your paperwork in place and have the financial arrangements confirmed with the lender. If you take this forward, confident approach, you want to be ready to act and act quickly to make an offer. A clean and ideally unconditional offer well ahead of anyone else.
Fewer properties are going to auction these days as the heat has come out of the market, the heat that caused irrational behaviour last year with short notice auctions. Today sellers are being conditioned to expect a slower pace and property taking longer to sell. So get in quick. Inspect the property, do the due diligence and get an offer on the table before the rest of the mob have even been to the open home. Be aggressive with the offer, couple that with the pace of your action and you will have the agent telling vendors that they need to take this offer seriously – after all, you would not act so hastily if you were not serious.
The one thing that plays to your favour is the well-known expression shared with vendor by agents. “The first offer is often the best offer”. Play that card to your full advantage and let the vendor consider the classic conundrum of a “bird in the hand being worth in the bush”.
Approach owners directly
Another idea, somewhat of an unusual approach you might like to consider is to actually approach the owners of a property which meets your criteria and based on your insight into the local market properties you think meets your budget. It may sound odd, but approached the right way it could pay off. Instead of knocking on the door and saying “have you ever thought of selling your house” to the person who opens the door, approach it in a more considered way. Write a letter.
The letter should approach the situation from your perspective. Share your circumstances in respect of your desire to live in the area, your financial situation and your respect that the owners may need time to think about it. Offer the opportunity for a registered valuer to undertake a valuation of the property at your expense. Highlight how a professionally negotiated private sale could provide considerable savings for them and bene ts to you. It is worth a try, you will never know unless you ask. People often wonder if someday, someone will rock up to their house and offer to buy it!
Write a letter
An idea for the smarter buyer is to add a personal touch to an offer. Try writing a letter to the vendors to accompany the offer. Sure we all believe that we will always take the best offer irrespective of the circumstances, but you would be amazed how much difference a personal handwritten letter can make. Share your desire to buy the house and explain why. People get attached to houses and it is not uncommon for owners to be keen to see the new owners as ‘like-them’ in some ways, a family to take care of the house. A touch of empathy can go a long way; and again, nothing ventured-nothing gained!
According to interest.co.nz's report for September, first home buyers in Auckland are star...Read More ›