If you’re trying to buy your first home right now, you might feel like giving up. The market has gone crazy and the rules are changing. It’s enough to make anyone’s head spin.
The latest development in lending criteria has to do with your discretionary spending. We’re all tired of hearing the claim that avocado on toast is ruining Millennials’ chance at buying a home - but now it’s not such a ridiculous claim.
The new regulations are intended to protect borrowers by allowing lenders to take a harder look at what they can afford. Now the ‘nonessentials’ that you spend your money on will be scrutinised to determine if you can afford a mortgage.
If you apply for a mortgage in 2022, your last three months’ discretionary spending will be assessed. That 50 cents you spend to put soy milk in your daily coffee will now impact your ability to buy a home - one estimate says it will reduce your ability to purchase by $2,210. Not the coffee, just the soy milk - a daily coffee reduces your ability to purchase by over $20,000. Now add in Netflix, takeaways, your gym membership… basically, anything you don’t need to survive will be taken into account. Don’t forget ‘buy now, pay later’ schemes like AfterPay - they will also be considered.
Now that sounds really grim. But all is not lost. Here are BetterSaver’s tips on what first home buyers should be doing now and if you should even be buying a home.
It’s more important than ever to get your finances sorted
Times are tough financially right now. The cost of living has increased making the essentials like groceries and gas more expensive. Along with the new lending criteria, it’s even harder to buy a first home. Those who budget, pay down debts and manage their expenses will have a major advantage.
If you have been putting off making a budget, do it now. Take a hard look at your spending, just like your bank will, and make the changes necessary to improve your financial well-being. We have some great tips for different styles of budgeting so you can find what works for you.
Track your discretionary spending for a month. Every cent. Then budget a reasonable amount to spend. No one wants to live without coffee or going to the gym. But make sure your spending is proportionate to your income and other expenses.
Make a plan to pay off debt. Our friends at Sorted outline the ‘snowball’ technique vs the ‘avalanche’ technique. Check it out and get moving on that debt.
Sort your KiwiSaver fund. Your KiwiSaver fund is the easiest way to invest and save for your future. If you qualify, you can use your fund towards a deposit on your first home. Take BetterSaver’s Fund Finder quiz and get into the right fund now so you can maximise your earnings.
Get advice early
If you’re in the market for a home, talk to a financial adviser as soon as you can. Don’t wait until you’re at a crisis point. A financial adviser can walk you through what you need to do to increase your eligibility for a home loan.
With the new rules, some who would have qualified for a loan in October could now be declined. So if you have been assessed and even gotten a pre-approval, check in with your financial adviser and see if your status might have changed. No one wants to be caught out by being declined when you thought everything was in order.
Consider whether buying a home or renting makes more sense for you
While it’s considered to be part of every Kiwi’s dream to own a home, it’s not for everyone. Some people choose to go against tradition and rent forever quite happily. Should you buy or rent? Consider the following:
- Do you value flexibility provided by renting or the security of owning a home?
- Are you prepared to deal with varied and unexpected expenses associated with owning a home, or would you prefer the predictability in the cost of renting?
- Do you want to spend time on home repairs or be able to pass them off to the landlord?
- Do you need the equity you earn from owning a home? A home is an investment, but there are lots of other ways of investing. Renting and investing wisely can net you similar earnings to owning a home.
Only you can decide how important it is to you to own a home. Remember it’s not a total necessity and there are other options out there.
Stay positive & stick to your goals
We know the world seems like a pretty scary place at the moment. But if we’ve learned anything over the past couple of years, it’s that things can change in an instant. What we’re all experiencing isn’t going to last forever.
In times like these, it’s important not to panic and to keep progressing towards your goals. While the new rules around home loan lending have tightened, it’s good news for people who have been budgeting and planning as there will be less competition at open homes. If you haven’t been so good at the budgeting and planning thing, now is the time to get started.
It’s never too late to sort your finances. We can help you make a start in about five minutes by sorting your KiwiSaver fund. The BetterSaver team wants to make it easy for every Kiwi to get financially savvy and smash your goals, whether that includes buying a home or not. We are available to answer any questions you have - send us a message or book a 15-minute chat with our expert advisers.