Property ladder to get steeper

23:07, Sep 18 2013

Poll:First-home buyers may have to borrow from their parents after new mortgage restrictions are introduced.

New Reserve Bank restrictions will take effect on October 1, limiting the number of low-deposit loans banks can make.

The changes mean many buyers will need a minimum deposit of 20 per cent before obtaining a home loan, with several banks signalling those with lower deposits will face higher interest rates.

Professionals Real Estate general manager Jon Irving said the new restrictions could require first-home buyers to look at other options when purchasing, including buying with a friend or asking parents to chip in.

Such approaches were once common in the south, but were sidelined when banks began lending up to 100 per cent of the value of properties, he said.

"If you go back . . . to the 70s, 80s and probably the early 90s, people had to have a lot higher deposits than they do now, but people still bought homes."


However, the new restrictions were not negative and could encourage people to save more.

For the past few years home buyers from further north had looked to Southland for affordable homes and he believed this could now increase.

Mortgage and insurance adviser Brenda Nom agreed some southern buyers would ask their parents for funding to make it to the 20 per cent deposit.

She encouraged would-be borrowers to shop around for loans, educate themselves and keep abreast of lending changes.

Banks would be looking for borrowers with no outstanding debt or hire-purchase payments, and a history of savings, she said.

With the median house price in Invercargill at $183,000, potential home buyers would have to save $140 a week to make the 20 per cent deposit within five years.

Those in Queenstown would need $323 a week to reach the deposit for the median house price of $420,000 in five years.

However, changes to the Welcome Home Loan scheme, which requires only a 10 per cent deposit, will also be introduced on October 1 to help lower-income first-home buyers. To be eligible for the scheme, borrowers must meet several criteria.

Real Estate Institute of New Zealand Queenstown spokesman Kelvin Collins said that as banks tightened loan criteria, first-time buyers in Queenstown were starting to be more realistic about the type of properties they could afford.

"For a while there, they wanted all the bells and whistles on the house and they were prepared to mortgage to the hilt to get it."

Now they were looking at older properties, although younger buyers still seemed unwilling to invest in places needing to be fixed up, he said.

There had been an influx of buyers rushing to buy before the new lending rules were implemented, but this had slowed as banks clamped down ahead of the October deadline, he said.

The Southland Times