Buyers Archives - Mortgage Advisers - Mortgage Lab

Maybe you’re in Auckland with your deposit ready to go for a house. Or maybe you’re looking to purchase your next investment property. For fun, we scoped out TradeMe to see what a million dollars buys you at the moment. The difference is… vast.

Auckland

It will come as little surprise to you that a million dollars doesn’t buy you a whole lot. For our largest city, you can get this 125sqm, 2 bedroom home in Point Chev. The section is 347sqm.

Tauranga

You get a little more bang for your million bucks in Tauranga. The section is a little bigger at 481sqm, the floor area is almost double the size at 240sqm. It has 4 bedrooms and is brand new.

Wellington

At about the same floor size, a million dollars gets you a Tauranga comparable. This house is 190sqm and on a slightly larger 533sqm of land. It has 3 bedrooms, which is less than the Tauranga house but it also has what Wellington excels at… views.

Christchurch

As we move further down the country, a million dollars takes on a whole new meaning. Scroll up, look at that Auckland house again. Now realise that the same amount of money buys you an 898sqm section and this castle. The ad doesn’t say what the floor area is, but it has enough parking for 6 cars and the photos show enough living-room area to swing a cat.
(Additional note, Mortgage Lab does not condone cat swinging)

Dunedin

A million dollars buys you not one, not two but three flats in this very large property in Dunedin. With a total floor area of 390sqm, it is over 3 times the size of the Auckland property. The ad also tells of about a 10% return which I would also guess is about 3 times the Auckland property. Whether the long-run capital gains could match or even come near Auckland is the reason some will choose this villa and some will choose one of the others above.

A long-term hold

Speaking of capital gains, we thought it would be fun to see what we could have bought with a million dollars 100 years ago. It’s hard to find good property details but we did find the Statistics Yearbook from 1918 here. In 1918, you could have bought:

All of Takapuna, Auckland for 1.1m pounds
All of Tauranga for 263,000 pounds
All of Karori, Wellington for 450,000 pounds
All of Linwood, Christchurch for 1.2m pounds
All of Roslyn, Dunedin for 1m pounds

Until recently, selling a house by Auction has been the most popular method of selling in Auckland. It takes advantage of the excitement in the market and pits buyers directly against each other. In most of the other cities and towns around NZ however, selling a house “price by negotiation” has remained one of the more popular methods. With the cool down in the Auckland housing market, we are beginning to see this trend start in our largest city too.

So what does price by negotiation mean?

Price by negotiation indicates the vendor is willing to take an offer at any time. It differs slightly from a Deadline Sale where a vendor will accept all offers up to a certain date. Price by negotiation is an open-ended timeline. However, once an offer has been submitted and conditionally accepted, further offers must wait for that initial deal to be cancelled before their offer can be accepted. Even with price by negotiation, it pays not to wait around too long.

How to get ready to make an offer?

You should ideally have your finance pre-approved before making an offer. An offer without a finance clause is a much stronger temptation for the Vendor. If you’re competing against other offers, the less conditions on the offer, the better. You all know where to click to get the pre-approval stage started!

You should always get a lawyer to check the offer before submitting it. A Sale and Purchase is a legally binding contract. Even a small mistake can cost tens of thousands of dollars.

What happens once your offer is accepted?

If you have conditions – finance, building report, valuations etc – in your offer, then you will have a set amount of time to get these ticked off before telling your Solicitor to go unconditional. At this point, you will need to pay the deposit into the bank. The deposit is usually 10% but can be varied and is not usually refundable if you want to pull out of the deal. Going unconditional is not to be taken lightly so check with your Solicitor before confirming.

Summary

There are some pros and cons of buying a Price By Negotiation property

Pros:

Your timeline can be a little more flexible than an auction
You can agree on a price before having to pay legal fees, Registered Valuations etc

Cons:

It can be hard to know what price to offer if no indication is given

We found a nice simple process chart here courtesy of our friends at The Property Practice. We recommend you check it out before you begin organising your pre-approval.

When you’re buying a house, there are a lot of things to think about. One of the steps that is often a mystery for our clients is conveyancing; ie; what happens with their lawyer.

We spoke to Krystle Gardner from Gardner Barristers & Solicitors and asked her a few of our clients most common questions:

When do you first need to make contact with your Conveyancing Solicitor?

I strongly suggest that you make contact with your Solicitor as soon as you make the decision to start looking to purchase. Earlier is better when you are selling your existing house too.

Making contact with your Solicitor this early will mean that you can move quickly should you find a house you like. You can then confidently put an offer on it whilst also enabling your solicitor to work with you, and the Real Estate Agent, to make sure that you take all legal steps needed including the very important review and approval of the agreement for sale and purchase.

We’ve heard it can take a few days to process the legal documents. What takes so long?

Agreement for Sale and Purchase

If you are buying your new house through a negotiation process (i.e. not at auction), there are a couple of steps that need to happen. The Real Estate Agent needs to prepare the draft agreement for sale and purchase and provide this to your Solicitor to review. They will include any conditions of the purchase and approve the agreement before it is provided to the Vendor as an offer. This process can take 24 to 48 hours depending on other demands. Upon your offer being accepted by the Vendor, the condition process starts.

The condition process involves you working with your Mortgage Broker and your Solicitor to sort out a home loan with a Bank. You’ll also carry out the legal enquiries on the house to make sure it is a good investment. In addition (and at a minimum) you would also be:

working with a builder to get a Building Report done on the house
obtain a copy of the Land Information Memorandum from the local Council
arranging for a Meth Inspection and,
a Registered Valuer if the bank requires it

The timing is a little different if you are buying your new house at an Auction. In this case, your Solicitor will work with you to carry out the legal enquiries (legal due diligence) on the house well ahead of the auction. Your Solicitor will also review the Agreement for Sale and Purchase prepared by the Real Estate Agent for use at the Auction. This will mean you can confidently bid at the Auction and sign the agreement to purchase the house on the day.

Home Loan Documents

The bank, after providing your mortgage adviser with final approval of your home loan, will send your Solicitor a letter of instructions which enclose all your home loan documents. For a basic home loan structure (i.e. not involving a Trust, Company or Guarantor) these home loan documents will usually include:

Home loan agreement(s);
Home Loan Flexible Facility Agreement(s) (if any);
Home loan terms and conditions;
Authority for disbursement of funds;
Cash contribution acknowledgement (if any); and
Solicitor’s certificate.

Your Solicitor will review the above home loan documents, and prepare any of the documents required by the Bank. They will also the prepare the required Authority and Instruction for Electronic Registration of the Transfer and Mortgage Instruments with Landonline and the Tax Statement. It’s then time to meet your Solicitor to sign the home loan documents and these additional documents. At this meeting, they will provide you with advice on the general nature and effect of the documents. You’ll also need a copy of your photo identification.

After receiving a copy of your insurance certificate for the new house, your Solicitor will then send the home loan documents, together with the completed solicitor’s certificate to the Bank. They’ll ask that the money be drawn down to your Solicitor’s Trust Account to complete the purchase.

In my experience, after receiving the Bank loan instructions, your Solicitor will require a minimum of 48 hours to review and prepare the documents. At this point, your Solicitor will be in a position to meet with you to sign these and give you the advice referred to above. The home loan documents must, according to most Bank requirements, be returned to the Bank a minimum of 48 hours before the purchase date. This ensures any issues can be addressed without it holding up the purchase of your new house.

Should I put my house in a Trust as well? When would I need to decide that?

There are some circumstances in which it will be appropriate for your house to be put in a Trust. But there are plenty of other circumstances in which it is not appropriate. For example, the individual(s) purchasing the house intend to use part of the house as a home office or a holiday home.

Gardner Barristers & Solicitors know through experience that it is sometimes the more appropriate approach for clients to use relationship property law together with asset protection structures as the means to protect the house rather than the trust structure.

It is very important, therefore, that you seek legal advice early. This means the right ownership structure for your circumstances is decided and established before the home loan documents are prepared.

Will you help me with my KiwiSaver withdrawal?

Your solicitor will absolutely help you with your KiwiSaver withdrawal. They will also receive the money into their Trust Account to use as part of the purchase price of your house.

Krystle is the owner of Gardner Barristers & Solicitors in Auckland.

Phone: 022 395 9973
Email: krystle@gardnerlaw.co.nz,
Address: P O Box 35 317, Auckland 0753
Web: www.gardnerlaw.co.nz.

Purchasing your first home can be confusing. The key to being ready to buy is to be organised. Here are 3 things that first home buyers can do today to get ready to apply for a mortgage.

Order their Credit Report

Ordering your own credit report is free. You can a nice and simple indication from Credit Simple or you can get the whole report (I recommend this) from Equifax. This second option can take a couple of weeks (my latest one turned up in 4 days though). This will allow you to see exactly what the bank is going to see about your history. If anything isn’t correct, now is the time to address that.

Tidy up your spending

Look through your last 3 months of bank statements. Are you spending more than you earn or going beyond the limit of your bank account? This is called going into “unarranged overdraft”. To a bank, these 2 words send up a big red flag. Once is usually ok, but more than that and getting a mortgage is going to be difficult.

You can limit how often this happens by setting up a spending account with automatic payments going out. You’ll know exactly how much is going to be spent and how much is in the account.

Key point: don’t have an eftpos account attached to this expenses account. You’ll end up over spending and going into overdraft again.

You can download a copy of The Mortgage Lab’s Excel Budgeting Spreadsheet here.

Get proof of your income

The bank is going to want to see your income and it won’t usually be enough to show them the money going into your bank account. Banks like to see payslips because they show how your income is made up (ie; is it a base salary or commission). The bank will usually want to see the most recent 3 payslips so if your HR department is a little relaxed in this area, get them working on it now.

If you are self-employed, you will need to have this year’s most recent Financial Statements (between October and March). You can see our blog on when you need to update your Accounts. Since Accountants are often busy, these can sometimes take a while to source so talk to your Accountant early.

Bonus Tip

If you’re ready to apply for a mortgage, it’s also time to look at your Life and Health insurance. You’re going to be signing a contract for a large amount of money and need to make sure you can pay for it. Find an insurance adviser who you like and feel is looking after your best interests. We believe the best advisers only advise on insurance which is why we don’t offer it in our company. They should be comparing several different products and choosing the one that suits you the most.

Summary

You can start getting ready to buy today by:

ordering and checking your Credit Report
tidying up your spending habits and making sure you are not going into unarranged overdraft
getting 3 of your most recent payslips or your latest set of business financials
finding a good insurance adviser and talking to them about adequate cover

It often feels like you’re stumbling in the dark when you’re buying your first home. So we’ve compiled a list of steps you are likely to go through in your house-buying adventure when purchasing at Auction.

When You’re Ready To Start Looking:

You’ll have a first meeting with your Mortgage Adviser. Fill in forms and give them all the documents they need
Mortgage is submitted to the bank
A pre-approval is issued and presented to you. This should be 5-7 days after submission.

Start Shopping:

Tick off all conditions on the pre-approval. The last remaining condition will be the bank seeing a signed Sale and Purchase. This can’t happen until after the Auction but you need the bank to confirm they are happy with the Sale and Purchase as it is before the Auction.
Win that Auction!

Some Auction Terminology

Hammer Price: The last bidder price, acknowledged by the auctioneer before dropping the hammer (or gavel)
Minimum Bid: The smallest amount that can be bid by a buyer, usually established through consultation with the seller
Maximum Bid: The maximum bid set by a buyer who is bidding remotely (or by proxy)
On-site Auction: An auction held at the property being sold
Reserve Price: A price set by the seller that a buyer must reach before the seller is obligated to sell
Sniper: A bidder that enters a last minute bid as the auction is due to be closed

If You Win The Auction

Send the signed Sale and Purchase to your Mortgage Adviser immediately. Once you have done this, your Adviser will begin to negotiate interest rates for you.
Meet your Mortgage Adviser and discuss the best structure for your mortgage. Documents will be sent to your Solicitor by the bank within a couple of days.

The week before Settlement:

The bank will call you and arrange for you to come in and open all the bank accounts
Your Solicitor will call you and arrange for you to come in and sign the documents.

The day before Settlement:

You’ll inspect the house and confirm it is acceptable

Settlement Day:

Your Solicitor will let you know when you the money has been transferred. You can collect the keys as soon as this has happened.

Congratulations! You’ve bought yourself a house!!

If you have less than 20% deposit, you are referred to (by the banks) as a Low Equity (or Deposit) Borrower. You are required to meet a different set of criteria to borrowers with 20% or more.

Understanding the requirements from the banks is confusing. We’ve come up with the most common questions to try to make it all easier.

How much is the absolute minimum deposit that I need?

The ideal deposit for any purchase is 20% but typically, the minimum required is 10% for an existing property and 5% for a new-build. Note: your income needs to be very good for a 5% deposit but it is possible. You’ll also need to explain why you haven’t saved more on your good income (for example, you’ve been paying down debt).

I heard banks weren’t lending to people with less than 20% deposit any more?

Banks can only lend out 10% of their total lending to “Low Equity Borrowers”. Note: this is likely to change from January 2018 based on the Reserve Banks latest announcements.

This means, if you are a Low Equity Borrower and you want to borrow $500,000, the bank has to lend out another $4,500,000 to other “High Equity” Borrowers. Each bank regularly decides (usually weekly but it can be daily) if they have enough to lend out so often a “no” today can be a “yes” tomorrow. The short answer is, main banks are still lending to Low Equity Borrowers but it depends on the day.

Another alternative is to use the Welcome Home Loan facility. This facility is exempt from the bank restraints but you must meet certain criteria. We have a brief article on the criteria for the Welcome Home Loan that you can read here.

Can I be gifted my entire deposit or do I need savings?

The banks want to see that you are responsible with your money. If you have been renting and have not been able to save money, then are you likely to pay down you mortgage? Most banks, therefore, require that you have saved at least 5% of the purchase price. So if you are buying a $500,000 home, you would need to have saved $25,000 on your own. The rest of your deposit can be gifted by a parent.

What counts as “savings”?

Money in the bank (obviously!)
KiwiSaver – including the amount received from the Government and your Employer
The HomeStart Grant (if you meet the criteria)
A bonus from your Salary

What doesn’t count as “savings”?

Money available on your Credit Card (lots of people try to withdraw it to use as a deposit)
Debts that are being repaid unless you can prove the original loan and show an agreement

Can I get a loan from my parents rather than a gift?

Yes, that’s perfectly ok. As long as you can afford the required repayments to your parents and the mortgage payments, the bank will be ok with it. Usually, the loan from your parents would be over 5 years which can lead to quite high payments though so do your calculations first.

Summary:

A 5% deposit is the minimum you typically need for construction lending. A 10% deposit is the minimum required for existing homes. Most banks don’t allow a pre-approval for Low Deposit Borrowers so you have to have an offer accepted on a property before you can apply.

Property prices have increased significantly over the past few years. It can be tempting for buyers to be on the hunt for a bargain. For most buyers, nothing says “desperate seller” more than a mortgagee sale. This is typically an owner, or owners, that have been unable to pay their mortgage and the bank is now selling the property on their behalf.

There are some things that a buyer, particularly a first home buyer, needs to be careful of when purchasing a property under mortgagee sale. We spoke to Kate Chivers from McVeagh Fleming Lawyers who had the following to say:

Mortgagee sales really are a case of buyer beware. A purchaser would essentially be purchasing a property on an “as is, where is” basis.

It’s important for a Buyer to realise that there will be no guarantee that the property purchased will come with vacant possession. On settlement the purchaser may be left to evict a tenant or even the previous owner. This can be time consuming and costly. The purchaser might not get keys for the property on settlement and even if keys were available, we would recommend that the purchaser engaged a locksmith to change the locks. There have been instances where the sitting tenant or owner has maliciously damaged property subject to sale and this could be another unexpected cost a potential purchaser may have to attend to.

Prior to purchase there may not be the opportunity to view the property or complete an adequate level of due diligence. Even if viewings were available, things could change without the purchasers knowledge prior to settlement. Such changes would most likely be outside the purchasers control and would be unlikely to be compensated by the mortgagee.

We would expect to see the standard form ADLS sale and purchase agreement heavily modified most of these modifications are likely to be designed to protect the mortgagee such as exclusions to the standard vendor warranties. This means a purchaser would have no recourse if, after settlement, they subsequently found, for example, unconsented works or malicious damage.

Summary:

We realise Mortgagee Sale properties can be tempting and if the risks are positively mitigated then it may result in the purchase of a property at a bargain price. We recommend you to engage a lawyer with experience in mortgagee sales early in the process and before making any offer to purchase. Getting professional advice will help mitigate the risks and save you a lot of trouble and cost in the longer term.