The Kiwi Dream

Ah, the great Kiwi Dream is to own your home. But is it worth it? Here are my reasons why you should buy a house in NZ (New Zealand).

Buying a home is a big commitment, you’re essentially signing up for a 30 year home loan. So, it can be a bit overwhelming with all the information circulating around us. Compound that with the high prices of property especially in Auckland really makes you wonder if we can even save enough money for the deposit alone! 

But it doesn’t have to be complicated and the hard part of the reasons some people tell you to rather rent is to reflect on the reason why are they telling you this? Do they even own a home? Are they renting? If you the same question, why you should buy a house? 99% of home owners will tell you to own a home instead of renting. 

Because it just makes sense, you’d rather pay off your own mortgage than rather paying down someone’s assets. 

New Zealand homeownership has been declining due to the rate of property prices increasing and part of the recent boom in asset prices across New Zealand is the VERY, VERY LOW interest rates.

When I bought my first home back around 2014, I had 20% deposit and the interest rates were starting to increase, I had my rate locked in at 5.99%! Now at the time of this post, it’s only 2.55%! That is more than 50% decrease in interest rates in less than a decade. 

It will remain low for quite some time because even the Reserve Bank of New Zealand (RBNZ) has indicated it will keep the Offical Cash Rate (OCR) at 0.25% for at least 12 months (as of 2020). At no point in the history of RBNZ has given a timeline on the Offical Cash Rate.

What is the Official Cash Rate in New Zealand mean? It is the wholesale price of borrowed money, so it affects the interest rates for commercial banks like ANZ, ASB, etc. When it decreases, the mortgage interest rates will typically decrease and vice versa. 

1 - Kiwisaver can be used towards your deposit of the house

You can now use Kiwisaver as part of the deposit towards the house you want to buy. Before, the government has said that Kiwisaver was exclusively for retirement, only to be withdrawn when you reach the age of 65 or if you are in financial hardship.

So how does Kiwisaver Withdrawal work for your first home? You need to be with Kiwisaver for a minimum of 3 years. You can withdrawal most of your savings but leave $1,000 in your Kiwisaver account.

This withdrawal is only to be used for your first home to live in. It can not be used for an investment property. To withdrawal the funds, you'll need to speak to your Kiwisaver provider. You’ll also need to contact a solicitor/lawyer to help as the funds will be held in their trust account. 

2 - First Home Buyers Grant

Did you know that you can receive up to $10,000 from the government for your first home? It’s called the First Home Buyers Grant by Kainga Ora. I’ve written a blog on it here. 

So, similar to Kiwisaver, you’ll need to be with Kiwisaver a minimum of 3 years and contributing towards your fund a minimum of 3 years too. There is an eligibility critera you need to meet, such as Income levels and maximum purchase prices at certain locations around New Zealand. Here is the link to read more. 

3 - Your Own Nest

You can do whatever you want, freedom! You don’t have to approach the landlord to ask for permission to do certain things around the house. Such as painting the house whatever colour you want, redo the curtains, change the carpet and having pets!

Secondly, you may also not have flatmates and creating a mess or not doing their fair share around the home. 

4 - Interest rates are low and cashback from banks

As mentioned before, interest rates are significantly lower over the years and should remain lower in the coming years. As I write this post-July 2020, the lowest interest rate for 1 year is 2.55%. Official Cash Rate is 0.25%. This is my favourite part of the post because I love numbers. I’ll give an example

Let’s say the house you are currently renting is worth $1,000,000 and you pay in $800/week in rent. The Landlord bought this property recently and as of the rules for investment properties, they only required a minimum of 20% deposit. Therefore, the landlord borrowed $800,000 from the bank at an interest rate of 2.55% over 30 years. 

The mortgage repayments (Principal & Interest) for the landlord is $730/week. As you can see, the $800 rent you pay per week already covers their mortgage repayments to the bank. Are you really using your money effectively?

You are helping somebody else pay downs one asset! Some landlords choose to have their mortgage repayments on Interest Only, then their weekly repayments are only $390/week!! They’ll pocket $410/week from you. 

Lastly, if you buy your home and get funding from the banks. They are all competing each other for market share and as a result, they ‘incentivise a cashback scheme' to their customers as a way to entice them to use their services. Bascically, giving you some cash upfront. 

Each bank varies their cashbacks, if you want to know what the average is talk to your financial advisor or mortgage broker. Or me 🙂 I’ll gladly give you help you in to your first home!

5 - Capital Gains 

At the time of writing this July 2020, there is generally no capital gains tax in New Zealand on your owner-occupied property (own MAIN home) - see here. But always best to seek professional advice such as a tax accountant.

Generally, house prices go up in the long term. Why? Well as the population increases around the world, people need to find a place to live and it’s down to supply and demand. For example, the medium house price back in 2008 was around $430,000 now in Feb 2020 is $935,000. That’s a $500,000 increase over 12 years 

6 - Future wealth generation 

As time goes on, you’ll be repaying your home loan and the size of the loan will be decreasing. Meaning more equity in your home think of it like a deposit building back up. With the increase in equity, you could use it to build wealth and buy an investment property, downsize or get a bigger home for a larger family. 

The baby boomer generation has taken advantage of their homes to build up their wealth through property, helping them through retirement. If you want to learn more about investing in property, send me an email and let’s see what we can do together. 

What next? See what you can actually buy and afford

Hopefully, you’ve got some good points and value out of this blog post on why you should buy a house in NZ. Some may disagree, some will agree, whichever is the case you need to ask yourself if it’s the right decision. 

The next step is to do a bit more research and see how much you can get pre-approved so you’ll know what is your maximum purchase price. Each bank assesses your application differently and that is why one of the many reasons you want to reach out to a financial adviser or mortgage broker to help get you the best deal out there.

Financial advisers like myself do this day in and day out, so we will know what is out in the market to help you get into your first home.

Book in a no obligation 10 minute phone call with me - see below

Good luck 

Will - Your Financial Engineer