Hi everyone it’s Money Empire ft. Mythbusters (don’t want to get copyright infringement) – Property Edition! In this article we’ll be chatting through some of the myths we want busted. Following on from our podcast (which you can listen to here).
PROPERTY MYTH: I’ll just save up for a 20% deposit.
Okay, but how? As houses are an asset class (meaning they should gain value over time), the magical 20% deposit number simply does not exist because it’s an ever-moving goal post. There are so many ways around the 20% deposit and so many clever tricks people don’t want you to know, which is why it’s best to see a mortgage adviser or a financial adviser.
You can buy a house with a few options of of grants (current as of 11 Aug 2022):
PROPERTY MYTH: I need to be on a bigger income to buy my first home.
You don’t! It’s all about serviceability (as in, how much can you afford to repay the loan and also pay for your needs being met – like food, utilities, etc.). It might mean not starting in your dream home and being creative around where and what you buy but having an open mind and not being emotional about it will allow you to buy whether it’s to live in our rent out to others.
PROPERTY MYTH: I can’t afford a mortgage repayment because these interest rates are high.
You would be surprised what you can do to structure a home loan / mortgage to make it affordable. Remember, rents can be expensive too, and it’s much more satisfying to pay off your ‘rent’ to the bank from your own home, rather than a landlord. Unless you really run through the numbers, you won’t really know.
For example, after crunching some numbers, Neve Jervis financial adviser found a situation to be like this: rent was about $780 per week, whereas a mortgage repayment was $820 per week. While we know some people can be living paycheck to paycheck, with very tight budgeting, an extra $40 per week for a lot of folks can be done.
PROPERTY MYTH: The property market will crash, so I’ll wait until then to buy a home.
So many people ask this, and we’re noticing prices drop off or even flatten. We also often hear, “I’ll just time the market”. We totally get that, the headlines can be misleading, and can steer you in a certain direction, but we challenge you: What are you judging it off, and how are you going to judge it?
By the time we hear people say, “Ah yes, now is the time to buy.” The hype has returned to the market and every person and their dog is out here trying to buy too. If we look at COVID for example, a lot of people were worried the housing market would crash, and instead it shot through the roof with 30% growth over two years, which is naturally unsustainable.
One of our blogs talked about the property market crashing, and in layman’s terms, a market crash or correction is a 5% drop. But a 5% drop after two years of 30% growth… That’s still 25%!
PROPERTY MYTH: I was reading a headline from [insert media outlet] that said “Don’t buy a home”.
ALTERNATIVE PROPERTY MYTH: I was listening to [family/friend not in finance] saying “Don’t buy a home”.
One of our most disliked sayings is “Oh I read this…” or “Oh I heard this…” and it often puts people on the backfoot. It’s natural to have confirmation bias or to trust those around you to make informed decisions, because they have your best interest at heart! But we find most people don’t work in the nitty-gritty, day to day of finance, and even if they’re on Reddit, YouTube, and sourcing the news, they may not work in the industry and have the same access to insights as a financial adviser or mortgage broker.
We’ve found that when people listen to when people say this sort of thing, they miss out on a property or miss out on the market all together. OR, they read only the headline and not the entire article.
PROPERTY MYTH: I won’t have enough money to buy a property before I go overseas.
Lots of Kiwis are leaving to do their big OE in London, in Aussie, or basically anywhere in the world, and many don’t recognise what they can actually do with the funds they have! Having an investment property tick along in the background can be a real asset if you’re moving overseas, and there are ways around this to make sure you don’t bleed your previous travel money dry.
PROPERTY MYTH: My rent is cheap af right now, why would I buy a house?
ALTERNATIVE PROPERTY MYTH: I have to live in the house once I’ve bought it.
Wrong! You do not. People with cheap rent are struggling to make the decision to jump on the ladder and pay a tonne in mortgage payments – but luckily you don’t actually need to. Similarly to the question above, if you have your rent running pretty cheap, you can get renters in to cover the cost of the mortgage (or a majority) and voila, you’re still not changing your lifestyle all that much!
Remember, you can’t apply all of these to your specific financial situation, and please don’t take this as personal advice! Reach out to a financial adviser, crunch the numbers, and let’s see what we can do.