Big step,so look before you leap

Is it a good time to buy? How much do I need to save? Will I be able to get a loan? These are all common questions for those thinking about buying their first home. Otago Daily Times reporter and recent first-home buyer Vaughan Elder spoke to those who work with those entering the property market in an effort to answer these questions and find out how some of the frequent pitfalls can be avoided.

With interest rates at record lows, house prices down from their peak and loans easier to come by than they were in the aftermath of the credit crunch, now is undoubtedly a good time for first-home buyers to enter the market.

The fact many first-home buyers can withdraw from their KiwiSaver accounts and are eligible for a first-home deposit subsidy - of up to $5000 per person - has meant many can buy earlier than they otherwise could have.

However, despite these conditions the process of getting together the money and then buying a first home - which for many people will be the most important financial decision they ever make - can still be a daunting one.

Nidd Realty property salesman Graeme Pennell said buying a property was something most New Zealanders aspired to.

''I think most New Zealanders at a reasonably young age realise the benefits of buying a property.

''It's very much a New Zealand thing.''

Home ownership was also an investment that usually did well for people, he said.

''It's a way of people accumulating wealth while having a place to live that people can make their own.''

However, entering the property market was ''not as straightforward as a lot of people assume it to be''.

''What often happens, I find, is that people start looking at properties and they haven't really done their information gathering ... and so they get a few surprises,'' Mr Pennell said.

These surprises included people finding out they were unable to borrow as much as they had thought they could or not being able to use their KiwiSaver in the way they expected.

In order to avoid these nasty shocks it was important to ''arm yourself with information'' by forming relationships with key people before seriously looking for a house, he said.

One of the first things people should be doing was to speak to a financial adviser about the benefits of KiwiSaver and using it as a deposit.

It was also wise to speak to a mortgage broker, who would be able to give advice about how much you could borrow.

Doing this, as opposed to sticking with a bank you were with, could get you better interest rates.

''It's all free, so why wouldn't you?'' he said.

It was easier to get money from banks than it was a couple of years ago, during the peak of the global financial crisis, Mr Pennell said.

''We went through a period a couple of years ago where financial institutions had bad experiences of people unable to meet their commitments.''

This meant for a while loans were harder to come by, but since then the situation had ''eased up'' considerably.

There were also more controls in place to stop real estate salespeople from taking part in unsavoury practices.

''I think we are in a lot better environment now than we used to be. There are a lot more safeguards in place to protect consumers and I think banks are being a bit more thorough in their checks as well.''

Added to this, the reduction in interest rates, the option to use KiwiSaver and a reduction or flattening of property prices, meant it was a good time to enter the market, he said.

Mortgage broker Glenda French, from Mortgage Link, said in order to get a loan approved there were a few conditions that needed to be met.

When it came to borrowing, people typically either needed to save a 5% deposit or else apply for a Welcome Home Loan, which allowed first buyers to borrow up to $200,000 without any deposit. Then, for properties worth more than $200,000 and up to a maximum of $280,000 they would have to pay 15% deposit, but only on the amount over $200,000.

There were often special conditions attached to low-deposit or zero-deposit loans, usually requiring applicants to have worked in the same industry for at least six months.

Some banks also charged a penalty interest rate of about 0.5% for people who had a deposit of less than 15%.

To get a loan approved, the house itself also had to be suitable.

''So, if there was deferred maintenance, the bank may deem the house as not being suitable security and may not lend on it.''

People also needed to know if they could get insurance on the property.

''It's increasingly something that you need to have sorted before you go unconditional. We haven't had one not be able to settle because of an insurance issue, but you do have to have it sorted,'' Ms French said.

Mr Pennell said when it came time to make an offer there were still important boxes to tick off.

You needed to be aware of what to make an offer subject to.

''It's often wise, unless you have got an absolute cast-iron guarantee, to make an offer subject to finance, just as a precaution.''

It was also prudent for people to make offers subject to a building inspection.

This meant if faults were found, the buyer could negotiate post-contract to have the issues remedied, either in the form of a price discount or else having the issue repaired before settlement.

''It's money well spent ... particularly if there is any doubt. Sure, you might spend $500 and you might not buy the property in the end, but that will have saved you a lot of heartache,'' he said.

Dunedin City Council building services manager Neil McLeod said requesting a Land Information Memorandum (LIM) report on a property before going through with a sale was another way to avoid nasty surprises.

LIM reports gave potential buyers information the council knew about a property, including recent building consents, building permits, information about land stability and planning requirements.

It also revealed if the council knew of any problems with the property, Mr McLeod said.

Problems that could turn up included the possibility there was a consent running live on a property, or the section could have geotechnical limitations. For instance, some properties in the Dunedin suburb of Fairfield could be on top of old mines.

Those who did not obtain a LIM report risked having to spend thousands of dollars getting work that had not been permitted up to compliance.

''Sometimes it's just a matter of us doing a final inspection and if everything is in order then we can issue the code compliance certificate for virtually no money whatsoever. But it can also mean when we get there we find there is quite a lot wrong and you could be talking tens or hundreds of thousands of dollars.''

''That's why you really want to check where things are and what we know about it before you make an offer.''

People who went ahead with a sale without a LIM report also risked not being able to use the property as they planned.

''For example in 2007 and 2008, when the real estate market was booming, it wasn't uncommon for people to turn up at our front counter and say `look, I have just bought this house and now I want to put a garage in the backyard'. We would say that's great except we have got a big sewer running through the backyard, so no, you are not going to do that.''

The key message was ''it's much easier to sort it out before you are the owner, rather than buy it and then find out you have problems'', Mr McLeod said.

At $275 for residential properties, buying a LIM report from the council was ''cheap insurance'' and could save a lot of hassle.

A partner at O'Neill Devereux, Todd Whitcombe, who is a member of the New Zealand Law Society's property law section executive committee, said a common mistake he came across was people not giving themselves enough time to get all the paperwork sorted out, particularly in relation to KiwiSaver.

He had dealt a few clients who had missed out on money because they left it too late or overlooked requirements.

Mr Whitcombe said it was the lawyer's job to keep home buyers informed and be ''frank and honest'' with them.

If lawyers were being ''evasive about providing information'' or were not doing their job properly, people could lodge a complaint with the New Zealand Law Society, but it was always best to consult a lawyer about the issue first.

First-home buyers looking for a lawyer should ''ring around'', in order to get value for money and make sure they were getting someone who was well versed in the area of property law.

People needed to realise this would probably be the ''most significant'' purchase in their lifetime.

''We are here to look out for you,'' he said.

Mr Pennell said when it came to the question of what was the right house to buy, the answer depended wholly on the person.

People needed to ask themselves if they wanted a ''fixer-upper'' or a house with very little in the way of major work.

There had been a shift in recent years away from DIY and more buyers were looking for houses ''where the work has pretty much been done''.

However, if people were open to doing work, they could look at a wider range of properties.

Not everyone bought a house with a mind to the amount of sun it received.

''Some people don't mind compromising on sun, because often if you compromise on sun, then you might get a wonderful view.''

Diane Rohtmets, who has just been through the process of buying her first home with her partner, said it was a good idea to get advice from people who had already been through the process.

''A big thing for us was that his friends have bought houses in the past and so they knew kind of what to look for.''

A major reason why she and her partner decided it was a good time to buy was because the market was so good.

''I get the feeling people are just going for it, if they see something that they want, because it won't last.''

Buying a first home was part of growing older and becoming more responsible, she said.

''I feel more grown up. I feel like I have got more responsibility, because there is something that I have to look after, in order to preserve it.''

- vaughan.elder@odt.co.nz