The best start

Buying a house off plans: Your mortgage options

4 min read

We want to help our customers get onto the property ladder and if you’re a first time home buyer, purchasing straight off a developer’s plan could be a good option.  Here are some things you might want to consider.

Incentives for buying a home off the plans

Due to New Zealand’s current housing shortage, there are incentives through KiwiSaver for buying a new home.

If you’re a first-home buyer who has contributed to KiwiSaver for at least three years, you may be able to withdraw some of your savings for the deposit and settlement amount of your house. And then things get exciting: Because you’re purchasing a brand-new home, you may be eligible for a HomeStart grant of up to $10,000, depending on how long you have been with KiwiSaver.  In contrast, the maximum you can get for an existing home is $5,000.

As an aside, if you have owned a home in the past, you may still be eligible as long as you haven’t previously received a HomeStart grant and no longer own a house or land.

The costs of home ownership

There are a host of other expenses that don’t concern tenants that you could be responsible for as a homeowner. So, being able to afford a certain amount in rent doesn’t necessarily mean you can manage the same in mortgage payments.

For example, with a house, it's not just the mortgage payments you have to allow for. You should also consider rates, home insurance, and maintenance. If your new home is part of a housing development, there may also be body corporate fees to pay.

Getting your finances in order

Being able to scrape together a deposit for a house is great. However, the bank may want to take a look at the rest of your finances. It is important that you demonstrate to your bank that the rest of your finances are in order. It’s a good idea to repay any debt and clear any bills that are outstanding which may affect your credit rating.

Are you protected?

When buying off the plans, the time it takes to get into your new home can vary widely. So, it’s important to keep in contact with your bank, especially if your financial circumstances change. Remember, the deposit you pay the developer is usually non-refundable. So as a precaution, should you suffer an illness or lose your job, getting life, trauma, or income-protection insurance is a good move.

Applying for a home loan

As a result of the housing shortage in New Zealand and to encourage people to create more new houses, some banks may only require a small desposit when you’re building or buying off the plans, some as little as 5% of the home’s value.

During the application process, your bank may ask you to provide details about how much you spend on your living expenses such as power, water, and groceries. To create a buffer, your bank may use the higher side of what it believes are typical costs for your situation. When calculating what you can afford in mortgage payments,  your bank may also use a slightly higher rate than the current interest rate. Doing so provides a level of confidence that if interest rates rise or your financial situation changes, you will still be able to afford your mortgage.

Structuring your mortgage

You can structure your mortgage as floating, fixed, revolving, or a combination of all three. When it comes to mortgages there isn’t a one size fits all solution, so we recommend that you talk to your mortgage advisor about how they can structure your mortgage to best fit your lifestyle. To lessen the impact of any interest-rate movements, some people will spread their fixed mortgage across two or more terms so that it doesn’t all roll off at the same time.

Some banks, like BNZ, also offer an offset mortgage which can help lower the interest you pay by looking at the combined balances of your accounts and subtracting these from the total owing on your home loan, meaning you only pay interest on the remaining amount.  You can even pool accounts with family members to reduce the interest amount even further.

How offsetting works

 Offsetting image for article

Check out the video below for more information.

If you’re ready to apply for a home loan all you have to do is get in touch with a mobile mortgage manager who can work you with you to understand your situation fully and design a mortgage that best suits your needs.