Brokers tell Prime Minister apartments out of reach for first-home buyers
Mortgage brokers say buying an apartment is not an easier option than buying a house for Auckland first-home buyers.
Prime Minister John Key has suggested young couples look to buy apartments instead of increasingly unaffordable houses.
But brokers say even though apartments cost less than houses, the size of deposits demanded by mortgage-lenders and the cost of body corporate fees can make them tougher to get into.
"Calling John Key a muppet has never crossed my mind before, especially on financial matters," said Auckland mortgage broker Campbell Hastie from the Go2Guys. "He is after all, tons more wealthy than I am and therefore knows a few things that I don't."
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But Hastie believed Key didn't have all the facts about property-lending before he urged first-home buyers to set their sights on apartments.
Apartments might be cheaper than houses, but Hastie said because banks were more cautious about lending on apartments, the deposits demanded of apartment buyers were often bigger.
"A house in Ranui can be purchased with a 10 per cent deposit whereas the apartment in town generally requires a 20 per cent deposit, sometimes more depending on the kind of apartment you're considering," Hastie said.
"In dollar terms it means buying a house in Ranui is actually easier to do because it requires $65,000 cash, against the apartment where you need to stump up with $90,000."
Hastie said: "In these desperate times, getting a roof over your head with a whopping great mortgage is often what people plump for."
"From my experience I know first-home buyers find it much harder to save a big enough deposit than they do in making the payments on a huge mortgage."
"To suggest that first-home buyers have unrealistic expectations in wanting to buy a house with some grass around it is akin to declaring that they're muppets. Most would settle for an apartment – if they could get one… But strangely enough it's harder to do than nabbing a three-beddy on a patch of lawn. Sometimes the top dog does get it wrong, even on financial matters."
Mortgage broker Sue Tierney said if a bank was happy with the quality of an apartment and the area it was in, then the deposit a buyer needed could be as low as 20-25 per cent. Buyers of smaller apartments had to stump up as much as 35 per cent for a deposit.
"It comes down to what a bank thinks of the apartment building," Tierney said.
Tierney said "sky rocketing" body corporate fees could also cause problems for first-home buyers.
Body corporate fees were paid by apartment owners to insure and maintain the buildings their apartment was in. But they had been rising as body corporates realised they were setting too little aside to fund future repairs.
"Body corporates are more aware of how much money they need to keep in their sinking fund," Tierney said.
Body corporate fees reduced the disposable income buyers had to service loans, Tierney said, in some cases making borrowing to buy an apartment unfeasible for first-home buyers.
Many apartments were also sold of the plans, but that could bring risks, and costs.
Hasties said these were illustrated by the collapse of the Flow apartment project.
Buyers got their deposits back, but found themselves re-entering a higher priced property market.