Going once, going twice, sold to first home buyers in NZ

We spent ages working through every scenario – what would it cost us if interest rates went up 1,2 even 4 per cent? Could we afford it if one of us lost our job for a while?

"61 per cent of people aged 18-29 said they expected to be able to buy a home in the future.”

It was an incredible feeling of achievement to sign on the dotted line and get the keys. 

Suddenly it felt like we were grown-ups... with a mortgage.

It’s been on my mind recently because there are signs first home buyers are coming back into the New Zealand market after a quiet period. 

Nationally, first home buyers made up 22 per cent of all house sales in the last quarter of 2017 – that’s up from 17 per cent three years ago.

The average age of first home buyers in New Zealand is 34 – in 1970, the average age was just 25 so it’s taking a bit longer for first home buyers to get their foot on the ladder.

{CF_INFOGRAM}

This is not surprising when you consider the national average price of a house in New Zealand increased by 57 per cent over the past five years. However the average disposable income of Kiwis increased just 9 per cent over the same period.

It’s worth keeping in mind too that these are just national averages. House prices in Auckland, Wellington and centres like Tauranga and Hamilton have increased more significantly.

ANZ recently asked 1,000 New Zealanders about their home ownership aspirations. Eighty per cent of home owners believe it was harder for first home buyers today than it was 10 years ago.

Regardless, young people remain upbeat about buying a home: 61 per cent of people aged 18-29 said they expected to be able to buy a home in the future. But that still leaves 39 per cent who weren’t so positive.

The reality is that buying a home is a key milestone – it’s the start of a new stage in your life but it’s also the end of what is usually a long period of saving hard.

Most people don’t wake up and think “I’ll buy a house this weekend”.  If you want to buy a house, you need to start planning years in advance. 

It’s also important to really be honest with yourself about what you can afford.

ANZ’s research tells us that more first home buyers are considering buying a house on the back of interest rates which are at a historic lows.

Low rates are undoubtedly good news for home buyers.

Interest rates have declined for a number of years but many home buyers have never had to contend with rising interest rates - so we’re encouraging our home loan customers to factor in a potential interest rate rise.

It’s important to ask: “Can we afford to keep up our mortgage repayments if interest rates go up?” and factor it into affordability calculations.

As a guide, a 1 per cent increase in the interest rate on the average $NZ379,000 first home loan would add about another $73 a week to mortgage repayments. 

Paying down the mortgage became my biggest financial priority when we bought our first home.

We maintained our payment levels when interest rates went down and ploughed every spare cent into the mortgage.

{CF_IMAGE}

{CF_IMAGE}

{CF_IMAGE}

Now is a great time to get stuck into that mortgage and really make the most of lower interest rates to reduce the size of a loan.

And if you’re contemplating buying your first home, make sure you factor in the possibility that interest rates might move up and ensure you have enough of a buffer to cover this.

There’s nothing on the economic horizon to suggest a dramatic change in interest rates but when you’re making the biggest financial decision of your life, it pays to plan for the worst case scenario as well as the best.

That’s part of being a grown up.

Antonia Watson is managing director for retail and business banking NZ at ANZ