Making the leap from being a tenant to a homeowner is a big one – not only financially but also emotionally. To many New Zealanders, home ownership is a goal towards which they strive, to gain security of tenure, to own what is often an asset that will grow in value, and to have something that is invariably an extension of their personality.
But with that comes responsibility – to maintain the house, be a ratepayer, meet mortgage payments and protect what is probably your largest asset.
Renting, on the other hand, comes with less responsibility but also with less security. Rent payments are wasted money, whereas with a mortgage, you effectively have a compulsory savings scheme. With every payment, you’re paying off a little of the amount you borrowed, and eventually you really do own your own home, instead of it being a joint venture with the bank.
So, once you’ve got yourself on to the escalator of home ownership, the financial outlay usually gets easier. Getting together the cash to take your first ride on that escalator can be extremely difficult – most of us are not good at saving. We’re more likely to seek instant gratification and flex our credit cards.
Putting your house deposit on credit cards is definitely not recommended. So you need to do some heavy-duty saving in the time before you buy your first home. If you are serious about becoming a home owner, it all starts here. The more you can save will directly affect how quickly you can move into your own home and how large your mortgage repayments will be. If you are starting out, you should look to borrow no more than 90% of the property’s price – even less would be preferable – so saving for that 10% deposit needs to be at the forefront of your mind. Regular automatic savings payments from your salary each month are crucial. But there is more to it than that. Get excited about the prospect of becoming a home owner, consider moving to a cheaper flat if you are spending over the odds on rent. Get a loan to pay off those credit card bills and make sure that any windfalls, like bonuses or tax refunds, go straight to your savings account rather than towards a 42” TV.
This is an extract from The Streetwise Home Buyer - the step-by-step guide to smart home buying in New Zealand.