Think you can't afford a house? You may be wrong

You don't need to aim for a median-priced house as your first purchase.
STACY SQUIRES/STUFF
You don't need to aim for a median-priced house as your first purchase.

OPINION: For many, the start of the year is a time for goal setting and future planning. During this time, many young Kiwis will have set a goal to buy their first home before the year is out.

That may be more achievable than first thought, according to data from the Ministry of Housing and Urban Development.

As part of the KiwiBuild Reset in September last year, the Ministry released several reports analysing first-home buyer demand across the country.

They found 29.21 per cent of renting households can afford the mortgage to purchase an affordable home in their local region.

New Zealand property market gaining momentum

The average house price has crossed $700k for first time, and younger Kiwis are giving up on home ownership.

Wellington renters are most likely to find their way into homeownership, with 43.87 per cent of renters able to service a mortgage on a KiwiBuild home.

Renters in Whanganui are the least likely to have the chance to take their first step on the property ladder, at just 14.7 per cent of renters.

This data was calculated using the price of a KiwiBuild home in each area. These prices average $615,000 in Auckland and $425,000 for the rest of the country – though each region used house prices appropriate to their local market.

These KiwiBuild house prices are lower than the average home in New Zealand. However, it is reasonable that the Ministry would use these lower prices given that first-home buyers are more likely to purchase cheaper homes than the average.

Hidden in the fine print is that these figures assume that first home buyers use a 15 per cent deposit and an 85 per cent mortgage, and already have the deposit available.

Using a deposit of less than 20 per cent could be considered a reasonable assumption, as 30 per cent of first-home buyers in 2018 bought their first home with less than a 20 per cent deposit.

Assuming those first-home buyers already have a 15 per cent deposit to hand is more contentious.

That's probably one reason why the Government lowered the minimum deposit requirement for First Home Loans to 5 per cent as part of the reset.

Ipsos, a polling company, recently found that 62 per cent of Kiwis believe they can't afford their own home.
JOHN BISSET/STUFF
Ipsos, a polling company, recently found that 62 per cent of Kiwis believe they can't afford their own home.

Yet, despite these good-news figures, it seems many first home buyers don't believe they can afford to buy a property.

Ipsos, a polling company, recently found that 62 per cent of Kiwis believe they can't afford their own home.

Yet according to these latest statistics, 72 per cent of Kiwis either already owned their own home or could afford their own home.

Perception doesn't seem to meet reality.

So what should hopeful first-home buyers consider in 2020?

Chances are you are in that 62 per cent of Kiwis who believe that homeownership can't be a reality for them. The statistics suggest that might not be true, so it may be time to reevaluate your situation.

Secondly, don't be dismayed when looking at house price statistics in your region.

As a first-home buyer, you don't have to buy the median-priced house. It's reasonable that your first home will be lower priced.

Affordable homes in Auckland and Queenstown Lakes District are priced at $650,000, $550,000 for major urban areas and $500,000 for the rest of New Zealand, using the KiwiBuild price caps as an indicator.

Finally, don't automatically plan on using a 20 per cent deposit. Under the Kiwibuild Reset, the minimum deposit required for a First Home Loan decreased to 5 per cent, and 30 per cent of first-home buyers don't use a 20 per cent deposit.

Ed McKnight is resident economist at Opes Partners.

 

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