Renting vs buying
12 months ago, the rental market in New Zealand was different. There has recently been an increase in the number of rentals being listed. The housing market has slowed. It is taking longer to sell homes and prices have dropped.
The price-to-rent-ratio is a tool to determine if it’s cheaper to rent or to own a property, although the price-to-rent ratio does need to be considered alongside other factors. Simply put, it is the ratio of home prices to the annual rent: the median home price divided by median annual rent. A ratio of 16 or higher indicates it is better to rent than buy.
Are rising interest rates a real threat to home ownership?
Inflation in Aotearoa has hit 7.3%, a 32-year high, and we’re all facing big rises in food, petrol and interest rates.
For those wanting to get on the property ladder, rising interest rates look to be making the step up to the first rung even harder, but is it all doom and gloom?
Lenders’ assessment rates and CCCFA rules:
As interest rates rise, so do lenders’ assessment rates, affecting some prospective first-time buyers’ borrowing capacity.
When doing their due diligence, banks are cautious about lending to borrowers right on the edge of managing their repayments, particularly in this climate of rising interest rates. Banks will be asking harder questions about borrowers’ ability to repay their home loans due to CCCFA rules.
First-home buyers may be borrowing less, but their exposure to interest rate rises and their ability to repay a mortgage can be larger, and banks become less willing to lend. A good discussion with an expert mortgage adviser or lending bank can give answer to all your worries.
House prices are dropping
The good news for first home buyers is that there are more houses on the market, prices have dropped, particularly at the bottom end of the home market and vendors are now more willing to negotiate. Lower house prices mean less is needed for a deposit and the overall loan amount needed is also less.
A silver lining for first-home buyers?
On the surface, there may not look like there is one. Higher interest rates do appear to make buying a home harder, but higher interest rates are a factor in cooling white-hot demand.
Houses are staying longer on the market. Buyers are no longer under so much FOMO pressure, and they can afford to take their time and look at their options. There’s now a little more wiggle room for negotiation.
Tougher lending criteria is also slowing the buying frenzy and although borrowing capacity is affected, lenders are generally more comfortable with the risk posed by a first-home buyer who is repaying a smaller home loan at a higher interest rate than one who is repaying a mammoth loan at ultra-low-interest rates.
Opportunities for first-home buyers
Falling property prices have always created opportunities for first-home buyers. If you work with one of our accredited mortgage advisers and set yourself up with a well-planned mortgage, we can work with you to find a home loan that fits your budget and help you ride the highs and lows of the housing market without too much drama. That is precisely what the experts at Global Finance are good at: helping you secure the best deals and ensure the most positive outcome for your future. Get in touch. You can contact us either on 09 2555500 or email at info@www.globalfinance.co.nz
**These are general guidelines and are by no means a reflection of bank or lending policies