Since the past three years, property prices and interest rates have been low but not as low as they are now.
The housing market today belongs to buyers. While you should provide 20% deposit for a good loan deal, banks are willing (because of falling volumes) to lend between 80% and 90% of the property cost. ASB Bank and Sovereign Home Loans recently relaxed their requirements for owner-occupied home loans to 80% to 90% Loan amount to Value of home Ratio (LVR).
I believe that 10% deposit is very reasonable. After all, you should have some stake in your home. Everyone knows that housing prices would not go up overnight and that banks want safety and return for their money.
You should demonstrate a good saving habit, without which, it will be hard to make your repayments. That is why banks want to see your saving habit over some period.
Your bank account would show how and how much you spend. Banks and some lending agencies would be happy to lend even up to 95% to professionals with stable income and good financial discipline.
Bankers’ risk
But lending at such a high LVR is a risk for the lender. A small downward movement of prices would make the loan unsecured. That is why any loan over 80% LVR comes with an additional cost called Low Equity Premium (LEP) charged lump sum at the time of loan disbursement or an increase in interest rates so long as your loan remains over 80% of your home value.
I examine home loan applications every day and in most cases, find good scope for improving spending habits or better money management. Budgeting services including advice play an important role in this country.
Even if you are not able to save 20% deposit, organise it from parents or by selling off your available assets, as most first homebuyers do. Thereafter, upgrading to a bigger and better home will not be problem.
The difference between rental cost and mortgage may not be huge.
For example, if you were purchasing a home for $350,000 with 15% deposit, you would be borrowing $300,000. Repayments on this amount over 30 years at 6.5% interest would amount to $436 dollars a week. Looking at today’s rental levels, it is not high. If you have two small children, you may even keep a boarder for $150 per week. In course of time, you would have your own home.
Everything depends on your situation and intentions. Property prices would increase in the long term, and hence the sooner you decide, the better.
You must keep in mind the fact that all banks sell their own home-loan products.
A good and experienced mortgage broker will have a sound knowledge of what is available in lending industry. Many brokers offer their initial advice free.
Suresh Sharma is Director of Cherry Mortgage Solutions based in Auckland. His personal disclosure statement is available on request. He can be contacted on 021-827575. Website: www.cherrymortgage.co.nz. Email: cherrymortgage@xtra.co.nz;
Disclaimer: The above article should be taken only as a guideline and not as personal advice. Mr Sharma and the management and staff of Indian Newslink absolve themselves of all responsibilities or liabilities in this connection.
