To buy or not to buy? That’s the big question for first-home buyers in this environment. The property market, as with everything else, has been affected by the global Covid-19 pandemic and New Zealand’s lock-down period. But these uncertain times may provide an opportunity to enter the property market. Read on to find out why.
The Three C’s of lending
When you apply for a loan, the lender assesses your application on the Three C’s of lending which are Capacity, Collateral and Character. Before you apply for a loan, it is a good idea to do a self-assessment of how strong you are in these areas. We need to look at whether the current environment has impacted any of these areas in any way.
Capacity – this refers to your ability to meet your loan repayments every time they fall due. This is the most important factor that lenders take into consideration.
Question to ask yourself – how confident am I that my business or employer will continue to employ me at the same level as before?
Collateral – this is how much deposit you are able to put into your first home and is often made up of savings, shares, KiwiSaver and sometimes gifts.
Question to ask yourself – have my balances been affected by the pandemic? You may need to look at your KiwiSaver balance, share portfolio, and whether the gift you were expecting is still available. Keep in mind that if your balances have gone down 10%, but the property market also reduces 10% you are in the same position you were in before.
Character – we like to look at Character as ‘how good are you with your money?’ Do you regularly go on shopping sprees (unlikely at this time), or do you regularly run out of money before your next paycheck? This is not a good sign for lenders.
Question to ask yourself – have I needed to go into overdraft or dip into my savings recently? Do I prioritise paying my fixed expenses such as rent, power and credit card bills on time?
If you were confident of your answers to the questions above, you may be in a great position to enter the property market. First home buyers normally are the younger generation who have time to ride out property cycles and benefit from the long-term appreciation of property that we’ve historically seen. One mantra that has proven to be true over time is ‘it’s not timing the market, it’s time IN the market’.
Right now, there are Three important factors that could present an opportunity for first home buyers.
Low interest rates
Interest rates are at an all-time low and New Zealand economists predict that the Reserve Bank will keep rates low for a long time to help stimulate the economy. At the time of going to print, one major lender was offering a 2-year fixed rate of just 2.99% (conditions apply).
No LVR restrictions
The Reserve Bank has made the decision to remove Loan-to-Value (LVR) restrictions that have been in place since 2013. These restrictions meant banks had to limit the customers they could lend to who had less than a 20% deposit. Although it was still possible to get a loan approved with a smaller deposit, lifting this restriction means that banks can be more open to lending to people with smaller deposits.
The NZ property market in the coming months
Historically economic recessions mean property prices fall (at least temporarily). During the Global Financial Crisis (GFC) of 2008/09 property prices dropped significantly in New Zealand. The market may move to a buyers’ market, with more properties being available than buyers are willing to buy. In a buyers’ market, property owners are forced to reduce their asking price to achieve a sale.
Where to from here?
If you, or someone you know, is looking at purchasing their first home, now is a great time to act. Here at Apex we work with a lot of first-home buyers and we can easily walk you through the process. We are online, available, and ready to help. Click here to get in touch.