Understanding Home Loan Deposits in New Zealand

Welcome to the Advanced Mortgage Solutions Podcast! 

In episode 8, Joel Sadler hosts Scott Miller, owner, and founder of Advanced Mortgage Solutions, who brings over 20 years of experience in property investment and mortgage solutions. 

They discuss various deposit options available for first-time home buyers, emphasizing the benefits of KiwiSaver and the requirements for deposits under 20%. 

Scott explains the intricacies of lender's mortgage insurance and family assistance options like gifts and equity contributions. 

The episode also covers bridging loans and the nuances of using KiwiSaver for joint home purchases. 

This informative session aims to help listeners navigate their property journey effectively. 

Tune in to gain valuable insights from an industry expert!

00:00 Introduction to the Podcast
00:21 Meet Scott Miller: Property Expert
00:52 Understanding Deposit Options for First-Time Buyers
03:24 Navigating Lender's Mortgage Insurance
07:08 KiwiSaver and Family Assistance for Home Buyers
10:53 Bridging Loans and Second Home Purchases
13:31 KiwiSaver Nuances and Joint Ownership
17:21 How to Reach Out for Mortgage Assistance

For assistance with a new or existing home loan, reach out to Advanced Mortgage Solutions today. www.advancedmortgagesolutions.co.nz 

Transcript

SPEAKER_01 0:07

Okay, hi everyone, welcome to the Advanced Mortgage Solutions Podcast. This is a podcast where Scott Miller from Advanced Mortgage Solutions assists people on their property journey. Whether you're a first-time buyer, a seasoned investor, we cover all topics. My name's Joel Sadler, and as I mentioned today, our guest and expert is Scott Miller, who's the owner and founder of Advanced Mortgage Solutions. Now, Scott has been a property investor for over 20 years and has a professional background in logistics, management and finance. And obviously for the last 17 plus years we've been working in the mortgage space. So he's a wealth of information. As we know, knowledge is power. So Scott, welcome today.

SPEAKER_00 0:48

What questions do you have for me today?

SPEAKER_01 0:52

Well, we had some really good feedback around, we touched on deposits, particularly for first home buyers and you know how much they need to get into a home and that sort of thing. So we thought, well, let's tease that out a bit more because there's such a wealth of knowledge, you know. Do you want to run us through deposit options that are available for people? Uh, and then we can sort of deep dive into some of those questions further as we go. Okay.

SPEAKER_00 1:15

Yep. So look at for first-home buyers, there is a specific product made available by the government, and it's available through Keanu Aura. Uh, and they have contracted that out to um about five main banks out there. So that would be um Westpac, Kiwi Bank, SBS, TSB, and the Co-op Bank. Now, there are some smaller options out there that also have access to the um first home loan through Kiang Aura, you know, the building societies, some of the bigger building societies also have access to that product. But what we find is usually the the banks have a little bit more horsepower than the building societies, so we tend to stick to them. You know, cashback and discounts seem to be a little bit um freer with the mainstream banks. And that allows uh advocants to buy a house with as little as a 5% deposit. Uh when we go directly to a bank, say, say Joel, your bank is let's just say ANZ, for example, um, then ANZ and all the other mainstream banks, um, when they don't use the the uh aura first home loan, um they require a 10% deposit as a minimum. So and then anything more than that is a bonus. Um I will say right now that if you have a 20% deposit that does ensure that you can sort of go to any lender you like. Um any lender will say, hey, come this way, we'd like your business. Um the discounts are as good as they're gonna be with the 20% deposit. Um the the there's usually uh the removal of any kind of bank fees, um, the cashback's as good as it's gonna be. So the 20% is the real gold standard of getting everything that you can, possibly can from a lender. And to the point where it wouldn't matter if you came to me with a 50% deposit or a 20% deposit, I could get you exactly the same. So that 20% is a magic line. But to come back into, you know, not every first-home buyer has the 20%, and that's that's that's the key. There's several ways you can get to 20%, but let's cover that off in a moment. Really, the further you're away from having a 20% deposit, the more expensive the mortgage is going to be in the repayments because something called lender's mortgage insurance is added to the payment. So there's a law in New Zealand that are placed upon the banks to say, hey, if you become aware that there's less than a 20% deposit, then you have to insure the mortgage. Now, the insurance is for the lender, not for the punter, but the punter pays for the insurance. Yeah, it's not true. Sounds a bit unfair, doesn't it? That's just the way it works. And that's why you find that if you only have a 5% deposit, for example, then you know the um the lender's mortgage insurance can be up to sort of 1.2% of the loan total, uh, sorry, of the um the interest rate that's charged, an extra 1.2% can be um added to it. When you've got a 10% deposit, that goes down to 0.75 um added to the interest rate. When you've got a 15% deposit, it drops to 0.25 of 1%. And obviously when you have a 20% deposit or more, there's no additional um loading on the interest rate uh because there's no requirement for any lender when there's a 20% deposit to have lender's mortgage insurance.

SPEAKER_01 4:39

Right, right. Okay, that makes sense. And do is this whole lender's mortgage insurance come about after the financial crisis back in 2018 or something like that to help protect the banks from overleverage kind of thing?

SPEAKER_00 4:51

No, look um I I've been doing this for just over 20 years, so a little bit more than that. 20 years, yeah, yeah, yeah. Awesome. Lenders mortgage insurance was a thing when I was cutting my teeth many, many years ago as a mortgage advisor. Um so it's not something that's come about through GFC's global financial crisis or or anything like that. It's always been something. Uh so you know, beyond my knowledge of why it's there, but it's always been there.

SPEAKER_01 5:18

Yeah, yeah. Okay. So it sounds like that uh, you know, ultimate um, you know, home loan deposit amounts, that 20% as you're saying, opens a lot of doors and a lot of options to you. Yeah. Um and then you mentioned obviously there were a few options there for those with less than 20%. Um are there any is there any further nuances to that, you know, less than 20% side of things you could brief us on?

SPEAKER_00 5:40

Well look, there's a few more expenses when you have less than a 20% deposit. And and it usually comes in the guise that the lender's going to ask for a registered valuation to be completed. Because there's a higher risk that's perceived by the lender by having less than a 20% deposit, they absolutely want to make sure that the value of the house is either more or equal to what you paid for that house. So most lenders will then say, hey, on top of the normal criteria that we'd ask for, we need to pay for a registered by um a registered valuation to ensure that we're not paying too much for that house when you've only got a five or ten or fifteen percent deposit. And the unfortunate part of that is that you know they range from about $800 through to about twelve hundred dollars, depending on the value of the house. And of course, at that time, especially as a first-home buyer, it's an unwelcome expense, but it's sort of essential and it's part of it. It's uh most of the time we just can't get around the need for that registered valuation. So again, you know, outwardly it seems to hurt the people that you're trying to help the most, you know, and that are finding it hardest to get into the first-home buyer space, but it just does pay to be aware of those extra little things that come along when you don't have a 20% deposit.

unknown 6:57

Yeah.

SPEAKER_00 6:58

Um, ways to get to 20% deposit are quite interesting though, if you want to think about that. We just jumped in the state.

SPEAKER_01 7:02

Yeah, yeah, that would yeah, yeah, that'd be great.

SPEAKER_00 7:04

So obviously the um advent of TV Saber has been an absolute godsend in regards to first-time buyers. You know, um, up to that point, you were really just waiting on savings or, you know, your parents to help you out, or even worse, maybe for your parents to pass before you you took over the family home, you know. Those days are fairly well gone. We we don't have to wait for that kind of event to happen. Uh but the KiwiSaber's been absolutely fantastic. And for your first home, you can use your KiwiSaber, obviously. Um if you've owned before but didn't use your KiwiSaber, um then you can get a second chance to use your KiwiSaber. But if you've bought a house before with your KiwiSaber and it's a second time round, say I don't know, you split up from a partner or something horrible like that. Um because you used your KiwiSaber the first time, you cannot use your Kiwi Saber the second time, even though you can approach um Gang Aura for a second chance. The second chance just illustrates that you're in the position of a first-hand buyer. It doesn't actually mean that you get another access to your KiwiSaber a second time. And there's quite a lot of misconception around that out there in the market. Savings is obviously one that you don't have to do a lot of explanation. So usually most first-hand buyers have a little bit of money and quite a lot of KiwiSaber. Uh, sometimes they have a lot of money and and Kiwi Saber. So, you know, it just depends on the individual, and sometimes that also becomes um a different story with age. So someone's in their early twenties is likely to have less savings than someone might be in their mid-30s, for example. Um, and that can change uh the sort of approach that we make to a lender. And and then we come to family assistance, and this is where it really does get quite helpful. There's two different types of family assistance. One is just a simple gift, and that means that the parents or a sibling or a family member um is going to give you some money to help you with your deposit funds to get into a house. Uh what that means is it can be used and added towards your deposit. There's no obligation at all by the person that's giving the gift, um by simply saying, Hey, you know, as a family member, I'm happy to help you out. Here goes some money, and I'm I don't expect it to be paid back. Uh the second option is uh equity within a house of a parent or a sibling, again, a family member um that is willing to um give up a wee bit of their equity to help you get to your 20% to buy your own home. There's a small obligation there now, so the people that are giving up that wee bit of equity to assist um their kids or whoever in the first home buying space, um, they become a guarantor for the little bits that's required to get to that 20% deposit. So there's a little bit more involved than just a simple gift. Yeah. Yeah. Okay. Um so that that's the first home buyer space. I mean, if you've got things, and I think she mentioned this last time, you know, can you use gold or crypto or another asset to secure, you know, mortgage against it. In very early days that used to be a thing, but I think um, you know, in the late 80s there was a stock market crash where a lot of people had taken equity out of their house to buy shares, and that went horribly wrong because the world came to an end financially in the late 80s sort of thing. So they pulled back on that kind of asset lend. Um so you would actually have to sort of transfer that back into a cat type of, you know, swap it for an equal amount in whatever gold or crypto or whatever you're trying to sell was worth. Including, you know, some people will sell, you know, an extra car or a car that they were doing up, you know, being a classic car or something like that, to help them with their deposit farms. And that's quite okay to do that. That's that's fine. Yeah. Then we move on to people who are saying they've already got their first home but they want to buy their second home. And there's something out there that used to be called a bridging loan. Um, that's not so much a thing anymore. Uh in 2017, the Responsible Lending Act said that at the time of application, all lending has to be affordable.

unknown 11:11

Right.

SPEAKER_00 11:11

Immediately, if you think that through, if you've got two home loans and you can't afford, you know, under the bank's criteria to afford two home loans, then they are now forced to decline that application because at the time of the application, all lending is no longer affordable. So the actual true sense of a bridging loan isn't really a thing anymore, and it hasn't been a thing for a long time. If you can afford both loans at once, then you're not getting a bridging loan, you're just getting a loan that you can afford both loans at once, right? Yeah, yeah, yeah. And then just to put a little bit of confusion in what I've just said, there's something called a closed bridging loan. And that's only possible when the house you're selling is unconditional and the house you're buying is unconditional, so the bank know the two dates and they go round the wrong way. And what I mean by that is you buy the new house before you can sell the new house, then they will do a bridging loan in that instance only because they know both sides of the equation are unconditional and they know the settlement dates of that bridging loan. After saying that, they won't sort of bridge for any longer than maybe two weeks. So it's not like one of those old bridging loans, you know, oh, I have a bridging loan for four months, you know. They would like to see those dates, even though they ran the wrong way to give no more than really two weeks to invent all sorts each other out, and the deposit funds can be placed against the new purchase by selling the old house. So that's quite a detailed little um explanation there. And look, if anyone watching, of course, wants more detail around that. Um, I'd encourage them to give me a call because we're sort of getting white into the weeds now and something that's a bit more technical than just uh deposit funds for a first time.

SPEAKER_01 12:59

Yeah, but still very helpful because I imagine you know, imagine imagine it'd be a small percentage of people in that situation, but quite a crucial, you know, piece of information, you know, for someone like yourself to help work that process through so they can get what they want.

SPEAKER_00 13:13

And unfortunately that um that phrase bridging loan, it's still bouncing around out there and you know, and the misconception are oh I'll just get a bridging loan then. Well Yeah, yeah. Yeah, yeah. Yeah, right. Can be a bit of a difficult uh conversation sometimes. Yes, yeah, I imagine.

SPEAKER_01 13:30

Um, one question I had uh on the KiwiSaver side of things, so you mentioned how KiwiSaver works. If you've got two parties, just say a couple, a couple buying their first home, uh they've both got a KiwiSaver fund that they've saved up, say one's got you know 50 grand, one's got 100 grand or whatever, or 50-50. Um, can they both use their KiwiSaver towards buying that home together as joint owners?

SPEAKER_00 13:53

Yeah, and again, there's some nuances absolutely is the answer. Yes, you can. Yeah, right.

SPEAKER_01 13:58

Yeah, right.

SPEAKER_00 13:59

If one decides not to use their KiwiSaber though, then they've sort of locked themselves out of ever being able to use their KiwiSaber to buy a house because they've now owned a house. And one of the rules of KiwiSaber says that you've owned a house, so you can't use your KiwiSaber unless it's a marital bull splat or for uh an influence outside of your control forced you to sell the house. So a lot of people sort of think, oh well, you know, with our second house purchase, we'll use the other person's KiwiSaver. Yeah. And you'll say, well, no, you can't because you've previously owned a house.

unknown 14:35

Wow.

SPEAKER_00 14:36

So it's interesting. Yeah, you've got to watch yourself there, right? Yeah. Because then you'll only have access to your KiwiSaver funds at the time of retirement. Or unfortunately, if you happen to have a separation with your partner at the time, and then you might get under the second chance a chance to use it again because you didn't use it the first time. But you don't go into a relationship with the idea of splitting up. So that's you know, so yeah. So an interesting question there, and there's a few little nuances, but yeah, look. The other one is that um a couple have got together, one person's already used their KiwiSaber to buy a house, they've sold that house and now they're looking to buy again. The other person hasn't purchased a house and has KiwiSaver by having this um person over here does not stop the person that has not owned a house before to use their KiwiSaber.

SPEAKER_01 15:26

Right. That that's what happened to in my relationship. Yeah, right. Is that I'd owned a house within a previous relationship, and then you know, my current relationship, she could use her Kiwi Saber towards the home we bought together, and I found that was quite interesting. So that's another scenario that can play out. Wow.

SPEAKER_00 15:40

Yeah, brilliant. I mean, the the the ticket there is or the the trick to it is if it's your first home and you've got Kiwi Saber, despite what anyone else is doing in relation to ownership, you can still use your KiwiSaber.

SPEAKER_01 15:54

Yeah, yeah, brilliant. Well, I mean, that's that's awesome information as well. Um, and and so if someone was to, you know, reach out to you and how the heck do you sift through their situation and kind of you know work through all of that information to find the best result for them? Like, because there's so many different things can be going on in people's lives, you know. 100%.

SPEAKER_00 16:18

Um and there's I suppose the experience of having doing it as as done it as long as I have is that you know some catch points where I have to know this piece of information to know which direction I then go with the next part of the conversation. So there's some very key information that I get to know very quickly to say, okay, we're actually going down this path to get to our um goal. Right. We are if it if the if the answer changed, then we'd have to go this way to get to our goal. So it's it's in depth and there's a lot to it, and and sometimes that surprises people on the depth of information that's required to get to you know, uh having finance approved. Um but equally we try and make it fun, we try and make it as lighthearted as we can um without it being too boring, you know, all about finance. Um that's why we uh bring across with you know the things behind me and things, just to try to make it a little different.

SPEAKER_01 17:16

Yeah, yeah, brilliant. Awesome, Scott. Well look, if someone's listening to the podcast today and they want to get in touch with you um and have an appointment with you, my understanding is that your service is free.

SPEAKER_00 17:27

Yeah, we we don't charge for our services, the bank pay us a commission um once the loan's settled. Um and that's not added to the applicant's uh repayments, it's not added to the interest rate that the that we secure for the uh applicant. It just comes out of the bank's overall profit model. Um so the service is completely free to our customers.

SPEAKER_01 17:48

Fantastic. And we'll obviously have the website link after this here, but what's your sort of preferred way that someone reaches out to you on your team?

SPEAKER_00 17:56

There's a lot of information uh on the on the website. And if you feel like you're you know the investigative type of person and want to find out a few things, then there's loads of information on there. There's contact forms, first-hand buyer forms, first-hand buyer guides, there's all sorts of things on the on the website, uh, and that would allow you to get hold of me or one of the other broachers here at Advanced World Solutions.

SPEAKER_01 18:19

Brilliant. Alright, Scott, thanks for sharing your wealth of information with us and thanks everybody that's listening. We'll see you on the next episode.