Don’t give up give up on buying your first home just yet

In August 1987 ‘I still haven’t found what I’m looking for’, by U2, was number 1 in the charts, Te Reo Māori was made an official language of New Zealand, David Lange was prime minister, the Dow Jones peaked at a record high of 2,722.42, and, on the 13th of August, I got a mortgage for my first home.

How do I know all of this? Well, I googled everything except my mortgage because, for some reason after all those years, I kept a letter confirming my loan approval. Why might you ask? I think I was actually pretty proud to buy my first home at the age of 22 and, as a closet hoarder, I thought it might be important to keep for some future purpose, and here we are.

Ignore the oldies (some of them, anyway)

Just so you know, I have a lot of sympathy for the latest generation of first homebuyers. If a baby boomer or Gen X (in my case) tells you it was a lot harder back in their day to get into their first home please tell them they’re dreamin’, and refer them to this article, based on the following points:

• In the ‘80s the average house price, compared to income, was something like three times the average salary, depending where you lived. By example, I was earning around $20,000 a year and my house cost $62,000 in Christchurch. I can tell you it wasn’t a flash house: in the winter it was colder inside than outside, and some days I couldn’t shower because the pipes were frozen. But hey it was my house.
• Today house prices are around 8 to 10 times the average salary, depending on where you live.
• The average house price back in 1987 was something like $89,000. Going by Core Logic’s figures, at the end of last year it was more than $1m.
• The oldies will say, of course, it was harder to get a loan back in the day, which is true. I worked for a bank and it still took me a month to get my loan approved, even with a deposit for nearly half the value of the house. 
• They’ll then tell you the interest rates were incredibly high. Again, yes they were. If you look at the letter, my mortgage rate was an eye watering 18.5%. That’s right, that’s not a typo.  You will be pleased to know just after I moved into my house the mortgage went up to 22%! The thing is we borrowed a lot less than now relative to income.
• They’ll probably say they had to save 25 to 30% of the deposit before the bank would even look at them and they had to show a long-term savings record. Again, this is true, but 25% of $60,000 to $90,000, relative to income, is quite different to 10 and 20% of $800,000 to $1m.
• The classic line I hear still from many of my generation and older is: “If we couldn’t afford it we went without, unlike this generation”. That is also true, but not through much choice of their own. There were no credit cards back then, or deferred buy now, pay later schemes. It was incredibly hard to get any form of credit at all unless you took out a high interest hire purchase agreement, mainly for cars or appliances.

When it comes to getting a mortgage, for any generation, there are three key factors to take into account:

1.      The interest rate you borrow the money at

2.      The length of time you take the loan out for

3.      The amount you borrow

Saving your purchases of smashed avocados is not going to get you there. We also know that today you essentially need two incomes to meet the mortgage repayments and, even then, the real challenge is how to build up that first home deposit.

While many of you will have debt already from student loans (something else my peers never had to deal with) it is pretty important to start saving for a deposit as early as you can.

Achieving the impossible – becoming a homeowner

Stay in the family home as long as you can and save as much as you can, is what I would suggest. I didn’t leave home until I was 21 and the average age is now 28, so it seems many are playing the long game and, hopefully, building up that deposit.

Join KiwiSaver if you haven’t already. This is the best way to build a deposit for your first home. This is because:

• you are saving a minimum of 3% of your salary,
• your employer is also contributing 3% in most cases
•  the government will kick in an extra $521 a year if you meet the member tax credit requirements
• You can then pretty much put all of your balance towards the deposit for your first home and
• You may also be eligible for the First Home Grant, based on your KiwiSaver contributions, of up to $10,000. There are a lot of conditions here but this is a great place to learn more.

Create a budget. This tells you where your money is going and where you can make lifestyle choices around your spending. All the small savings you can make over time can really help.

Most importantly, plan well ahead and get some expertise from your bank or mortgage broker. They will guide you and you might just achieve your goal sooner than you think.

Many of you, I am sure, may have thought there was no way you could ever buy your first home, as house prices kept rising faster than you could save a deposit. Well, this year we are seeing house values fall and, while I am no economist, some have said they may come down by 10% or more.

Try to look at improving your income. This might mean seeking a higher paid job or getting a second job to build that savings deposit even quicker. I worked in bars as a second job, which wasn’t always the most fun. But what it did do was stop me from spending my money in them, which was quite a savings in itself!

A loan from the bank of mum and dad could be an option, but this has its risks. Not so much for you but for them, especially if you are in a relationship today or will be in the future. It’s worthwhile to get some expert legal advice on that for everyone’s wellbeing.

If you’re in a relationship then two incomes are way better than one and, if you are not, perhaps you have a sister, brother or friend who you could pool your resources with to get into your first home. Again, this needs further thought and expertise to protect everyone’s future interests, but it might just be the trick.

Getting flatmates in to help with your mortgage repayments is another good option. As I understand it, banks may only allow $100 to $150 [AK2] dollars a week per flatmate (max two) but they can also help with your household expenses like power, internet, etc. I had flatmates in from day one and it helped me to pay off my loan even quicker.

As you can see, there are a lot of levers to play with. Other options to consider are where and what you look to buy to get you on the first rung of the housing ladder.

Is this a good time to buy? Who knows? If I had 20/20 hindsight when I bought my first home I would have known that the share market crash of 1987 was going to happen the following month, house prices in 1991 would rise to $120,000, and my household income would have doubled because I entered into a long-term relationship. Probably, in hindsight, I should have borrowed more. But that is just what hindsight is: knowing after the fact.

I’m not saying it will be easy and you need to take a long-term view, get some professional advice early and start setting some goals. I wanted to own my first home ever since I started work. It was a long-term goal for me.

Seize the turning worm

I think the worm is turning in your favour and maybe, just maybe, with a little luck, what might have been a pipe dream is now becoming a little more accessible than you thought. So, perhaps, you might be able to start your own article on this topic in 35 years’ time with: Harry Styles was number 1 in the charts with ‘As it was’, Jacinda Ardern was New Zealand’s prime minister, the Dow Jones was 31,292, the Ukraine War was in full flight and I bought my first home.