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Low interest rates call for family collaboration

Contributor:
Fuseworks Media
Fuseworks Media

By Derryn Mayne - Century 21 New Zealand owner

With a record low Official Cash Rate delivering both low mortgage rates and low bank deposits rates, it’s the perfect time for young renters to talk to their parents about buying a property together.

Century 21 salespeople nationwide are now seeing more and more New Zealand families collaborating to secure a property. While this month’s housing reset by the Government will help more first-home buyers, many families will still not be eligible for any assistance.

I’m pleased the Government-backed schemes for first-home buyers will soon have lower deposit requirements.

However, many Kiwis will still not qualify because of the income requirements, as well as the price caps in place for all singles and couples applying. The price cap in Auckland is $650,000, which is pretty tough.

Another new rule that sees family and friends able to pool their respective $10,000 First Home Grant and KiwiSaver to buy their first home won’t actually enable many parents to trigger greater Government assistance for their kids. That’s largely because eligibility dictates that all applicants can not currently own a property, and have to commit to living in the new property for at least six months.

Yes, more first-home buyers will get Government assistance from October, but private family collaboration outside of these public schemes will remain key to getting a lot of Kiwis into first homes.

Families are starting to realise that no one is winning when the parents are getting nominal returns for their bank savings, while their adult children are paying record-high rents to their landlords.

In many cases now, tenants are paying more in rent than they would be in mortgage repayments. However, with living costs high, many simply struggle to come up with the required deposit. Now’s the time to have a talk to Mum and Dad because there are some serious win-wins to be had in this environment.

The parents’ investment will ensure long term capital gain, while their children will be able to get onto the housing ladder at the time when house prices have steadied and interest rates are the lowest in over 50 years.

The parents might stump up the deposit and have their kids paying them back with interest. Alternatively, the parents might own a percentage of the property with their children buying them out when they go to sell their first or second home. Either way residential property in New Zealand has always proven to be a solid medium to long term investment.

Based on Kiwibank’s 3.55% one-year home loan rate, buying a house at the national median price of $575,000, after paying a 20% deposit, would cost in interest repayments about the same as paying the national median rent of $500 a week.

With experts expecting interest rates to fall further, while rents in many areas will continue to increase, buying a house will only become more attractive.

Families should get together with a mortgage broker because many will be pleasantly surprised. Let’s just say Century 21 Home Loans has been getting a lot of calls over the past few weeks, with multi-generational meetings becoming more of the norm.

To view the latest edition of the New Zealand C21 Market Pulse, visit: https://issuu.com/century21australasia/docs/c21_market_pulse_nz_september_2019

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