Struggling to come up with the cash for your first home? Claire Connell asks the experts for their tips to help you get to your goal faster.
Ramp up your KiwiSaver
If you know that buying a house is in your future, increase your KiwiSaver contributions to
8 per cent as soon as you can. If you do this from early in your career, you’ll quickly get used to saving that amount.
Put your money in the right fund for your time frame and risk tolerance. If you want to buy in the next few years, you’ll probably want a fund that doesn’t invest mainly in growth assets. This will help limit the damage volatility could do to your savings.
If your first house is five years or more away, you can afford to take a bit more risk and may get better returns. Get personalised advice from an adviser or your KiwiSaver provider.
Susan Edmunds, personal finance journalist and author
Plan for mortgage payments
Save the difference between your current rent and your proposed mortgage for three to six months. Instead of spending the surplus income, transfer it into a savings account.
This can help you be better prepared when it comes to apply for a home loan, as well as showing you can afford the proposed mortgage. As a bonus, it helps build your deposit while you get used to how the proposed mortgage payments will feel.
Marilize Visser, Squirrel mortgage adviser
Reduce your credit and store card limits. Even if you pay off your balance every month, a high credit limit can reduce how much you can borrow from the bank. The cost of this potential debt cuts down what you can spend on a home loan.
A credit limit of NZ$10,000 could reduce the size of the loan you could service by up to NZ$50,000, depending on interest rates.
While you’re saving for your first home, get rid of credit cards you don’t use and close the accounts. Reduce your credit card limit.
Amy Hamilton Chadwick, registered financial adviser and personal finance journalist
Create an emotional connection
One of my favourite tips is to save regularly into an account that’s with a different bank than your usual one. You don’t see money sitting in a savings account every time you log into your online banking.
It’s not uncommon for us to say to ourselves, ‘I’ll just use some of that money and put it back next pay cheque’. Usually that doesn’t happen, so remove temptation.
Name the account to something like ‘House Deposit Savings’. This makes saving much easier to do.
Lisa Dudson, registered financial adviser and author
Accelerate your savings
Build up your savings gradually. Set up a small weekly automatic transfer into a savings account, say NZ$50. Then, on the first of every month, increase the amount by NZ$10. Set up reminders.
You won’t miss the extra NZ$10, but over time it will make a huge difference. By the end of year one, you will be saving NZ$170 a week, or NZ$8,840 a year. After five years, you’ll be saving NZ$650 a week – an impressive $33,800 a year!
If, at some stage you can’t keep up the NZ$10 increase, reduce it, but always raise your savings by at least a dollar a month.
When the total in your savings account reaches, say NZ$1,000, transfer it into bank term deposits or your KiwiSaver account to get a higher return.
Mary Holm, personal finance journalist and author
Make it achievable
Always plan back from your savings goal and create bite-sized mini-goals.
Have a clear idea of how much deposit you need for your first home. Now, make a call on how soon you want to buy. Maybe in 12 months, or maybe in five years.
Over that time, work out how many pay cheques you’d get. Divide the deposit amount by the number of pay cheques. Put that dollar amount aside from your salary on each payday. Only then allocate what’s left over to budget your living expenses.
Put away what you need first, and then budget your life around what’s left over.
Binu Paul, Pocketwise.co.nz co-founder
Live on less
Live like you’re not on the income you’re on. Many people spend based on what they earn, meaning as your income increases, so does your spending. This may mean a more expensive car, eating out more, or spending more at the supermarket.
Put 10-15 per cent of your salary each payday in a separate account or investment you can’t touch.
You’ll get used to the lower level of income, and you’ll spend within your means. When you finally find that perfect first home, you’ll have the money ready.
Simon Hepple, Pie Funds Management wealth adviser, authorised financial adviser and certified financial planner
Take advantage of any help
You might be able to access subsidies, low-deposit lending options, or shared equity programmes. Find out about them.
In a recent survey, we saw 60 per cent of first-home buyers getting financial gifts from parents and family. It’s like an early inheritance from parents. It’s not an option for all first-home buyers, but something worth investigating.
Also look at the government’s KiwiSaver HomeStart grant. You could get up to $20,000 per couple for a first-home new build, or up to $10,000 for buying an existing home. Look at withdrawing your KiwiSaver money to help with a first-home deposit.
Lesley Harris, director of the First Home Buyers Club
Published 29 May 2019
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.