Buying a house in New Zealand is largely dependent on your life stage and income. If you are a married double income couple with a deposit saved up, the process is straightforward. But what if you aren’t? What if you want to buy a house with your friends? Or your parents? How does it all work then? It requires a bit more thinking.

This article will detail all the steps you need to think about for no matter what life stage and income you are at.

Contents:

1. House Buying Process in New Zealand: The General Guide
2. Buying a house as a married couple
3. Buying a house as a non-married couple
4. Buying a house with your friends
5. Buying a house with your family

House Buying Process in New Zealand: The General Guide

Working out your budget and deposit

The house buying process typically starts a couple of years before you even start looking. It is deciding on buying a house, the type of house and saving up a deposit.

The general rule of thumb is that if you are buying your first home, don’t expect it to be your forever home. While there are some exceptions, you can expect your circumstances to change and you may need a bigger or smaller home; or move around.

And while social media may bait you into thinking you are well behind the curve when it comes to buying your first home, the average age of a first home buyer in New Zealand is 35 years old.

As you are saving for your first home, you will also need to calibrate your expectations on what you can afford. You should also look into your lifestyle and what you may be willing to give up in order to buy a home and afford the repayments.

A great tool to see what you can afford is using a mortgage calculator. You can fiddle with your deposit, the interest rate and the term to see what your repayments will be.

In New Zealand, banks typically expect a double income couple to have around a 20% deposit. However, there is some leeway on this and it is possible to negotiate with banks.

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Case study: Nigel is looking to buy a house with his wife Jolyene. Together they earn $180,000. They have been saving for three years and have around $200,000 including KiwiSaver. They are looking to buy their first home. They look on websites such as realestate.co.nz and find properties that they love in the $1.6 million mark. They have four options:1. Continue to save up a deposit.2. Negotiate with their bank.3. Look for more affordable homes.4. Buy with a friend or family member.

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Getting a pre-approved home loan

Going to open homes and viewing properties online can be extremely exciting but before you do so, you need to know how much money you can actually borrow. While there are some basic principles, getting an answer from your bank will reflect how much you can actually borrow.

What does pre-approval mean?

A pre-approval is how much a bank or financial institution is willing to loan you to buy a house. Banks and financial institutions determine your pre-approval by looking at:

• The price of the homes you are looking at buy
• The size of your deposit
• Your income(s)
• Your ability to pay the home loan with consideration to your outgoings
• Any equity you may have in properties that you may already own (or from your parents).

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Case study: Nigel and Jolyene have saved up $200,000. They are looking at houses around $1.6 million. But their bank has considered their spending habits and are only willing to lend them $1 million, giving them a buying power of $1.2 million. Again, they have the same four options:1. Continue to save up a deposit.2. Negotiate with their bank.3. Look for more affordable homes.4. Buy with a friend or family member.

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Do you need a pre-approval to buy a house in New Zealand?

It is a good idea to get pre-approved for a mortgage. This helps in many ways:

• It allows you to make a stronger offer on a house because the seller knows you can get a mortgage.
• The mortgage process will go faster since the lender has already checked over your finances..
• You will know how much you can borrow so you can bid with confidence at auctions.
• You will have a lot more confidence going into negotiations with sellers and real estate agents.

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Get a solicitor

As you start to look at houses, its wise to get a solicitor. A solicitor is someone that can provide you with independent legal advice. They make sure all the right legal processes are followed. Solicitors can also provide you with advice surrounding property reports such as Land Information Memorandums (LIM Report) and titles. You will also need to be aware of:

• The type of property you are buying (freehold, cross lease, leasehold, unit title etc).
• The location of the property boundaries.
• Any rights and restrictions concerning your property (i.e., shared driveway etc).

They can also provide you guidance on what to expect from your bank and a sales and purchases agreement.

Slice works with a number of experienced solicitors and you can find them here.

Look for a house to buy

The fun part can quickly turn stressful. And while the common advice is to start online and go to a few open homes, you can speed up finding what you are looking for by creating a checklist of things that you want. The MoSCoW method is a great way to do this. It stands for Must, Should, Could, and Won’t.

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Case study: Nigel and Jolyene have decided to buy a house with Jolyene’s mum. Together they have created a checklist to quickly filter decide on which open home’s they would like to go and see. Below is their MoSCoW:

‍Must:

• In Manukau, Botany or Ormiston
• Quiet street
• Back yard

‍Should:

• New-ish bathroom and kitchen
• Open plan

‍Could:

• Wooden floors
• Deck

‍Won’t

1. No insulation
2. Single glazed windows

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Get a property inspection done

Once you have found a house that you are very interested in, you can get a property inspection done. This is where a builder goes through the property to check it through to make sure the building is up to scratch. It is a form of due diligence.

A property report will usually highlight areas of the house that you need to be aware of when putting in an offer. For example, a property report may highlight that two windows do not close tightly and that can become a negotiation chip as you go into putting in an offer.

Make an offer

After all the checks and balances have been completed, you are ready to make an offer. But before you do, it is worth noting that there are two types of offers:

• Unconditional offer: A straightforward purchase offer according to the sales and purchase agreement terms.
• Conditional offer: When your offer has conditions attached. This can include arranging finance or only agreeing to buy with a building report. Typically house sellers prefer unconditional offers.

Offer negotiation

Once you put in an offer, it will typically go to some form of negotiation. This is where the seller will usually ask for more money or a bit more time to move out. It is your job to negotiate a price and move in date.

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Case study: Nigel and Jolyene have finally decided on putting in an offer to buy a house for around $1.6 million with the help of Jolyene’s mum. The seller Steve and Barbara want two months to move out and also wants $1.63 million. Nigel and Jolyene suggest Steve and Barbara can have the house for three more months before they move in but for the price to be $1.6 million. Steve and Barbara accept.

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Offer acceptance

Supposing you and the seller are happy with the price, the sales and purchases agreement will be signed.

Settlement date

Now you need to move fast. Settlement day is the date on which you need to pay the balance of the property with your arranged finance. Work closely with your solicitor and real estate agent to get this across the line.

There are time limitations on this and you can incur fees during this process if you are not fast enough.

Buying a house as a married couple in New Zealand

Buying a house as a married couple is the status quo in New Zealand. And the process detailed above detail all the steps you need to go through. But there are some conversations you should have between yourselves.

Do I need a prenuptial agreement when buying a house?

It is easy to assume being married is a 50/50 relationship. And that is definitely how the courts see it. But what if one person is contributing much more to the deposit than the other? As awkward as it sounds, buying a house is a good time to talk about a pre-nuptial agreement.

What is a prenuptial agreement?

A prenuptial agreement (AKA ‘prenup’ is when you define each person’s ‘share’ if you decide to get a divorce or if one partner dies before the other. It is also a way to protect your assets because when you get a divorce and if there are no other agreements in place, they will be split 50/50.

It is also important to share this with your solicitor.

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Case study: Suppose Anne and Bob buy a house for $1 million. They had a deposit of $300,000. Anne put in $250,000 and Bob $50,000. Anne will be moving to part time when they decide to have kids so Bob will be contributing the most after that. They decide to put together a prenup. If they get divorced, the property sales will be distributed 60:40 between Anne and Bob.

What is your plan for the next few years?

Buying a property often coincides with having kids. It is worth having the conversation on who is going to stay at home with the kids and for how long. And if one partner does decide to go on maternity leave, how long for? And how will you continue to pay your home loan?

Sound like a big conversation? We have put together a free checklist here

Buying a house as a non-married couple

‘Living together’ has become increasingly common. According to the 2018 NZ Census, there were 400,000 couples living together without being married, which represents an increase of 21% from 2013.

It's not uncommon for couples to buy a property together before getting married. In some cases, couples may decide to buy a property together as a first step towards building their future together, while others may do so as a practical solution to housing affordability.

According to a study conducted by CoreLogic in 2020, around 20% of first-home buyers were unmarried couples.

Advantages of buying a house with your partner

It is a good alternative to a wedding

Weddings can cost up to $50,000. This can put a serious dent in your home buying aspirations. Many couples see buying a house as a stronger sign of their commitment than a wedding.

It signifies the next step in your relationship

Buying a house is a really big deal. Even more so with the person you are buying it with. If you are already living together, in some instances it can be cheaper than rent. And instead of seeing a place to live together as an expense, you can start to see it as an asset and build long term wealth.

It gives you your own space that you control

Having your own house means that you can decide on how things should operate in your house. It is a good move especially if you are tired of flatting and need your own space. Furthermore, if you do decide to have flat-mates, they can help you pay off your mortgage; and you can expand into that space as your life circumstances change.

You can manage it all with Slice

Slice offers you the legal templates, solicitors and platform to manage the whole process. You can make buying a home with your partner a breeze.

Case study: Betty and John have been dating together for three years and flatting for two. They have decided to buy a new home of their own. They want to get married at some stage and have two kids. They buy a four bedroom house. They rent out two bedrooms to flat mates to help them with their mortgage repayments for the time being. Three years later Betty and John get married and are trying for a baby. They vacate the two rooms to have their own space. In the three years, the value of the property has gone up by $200,000.

What are the risks of buying a house with my boyfriend / girlfriend

In New Zealand, a study conducted by the New Zealand Ministry of Justice found that cohabiting couples are slightly more likely to separate than married couples. During the break up process, you can also risk losing your deposit and equity at 50/50 even if you put in 90% of the capital if you have lived together for more than two years.

It's important to note that this trend of a higher risk of breakups for couples living together is not necessarily a reflection of the quality of the relationship, but rather it could be the result of different expectations and goals for the relationship.

And this is why it is so important to use something Slice. We help you create the right agreements to protect your assets in a way that is meaningful for everyone. We have a great list of solicitors and template agreements to get you started.

Getting pre-approval with your partner

Getting a pre-approval with your partner is not so different to that of a married couple. Here are the steps you need to go through:

Be honest with your partner about your financial situation.

‍If you are or aren’t ready to buy a house, be upfront about it. If you’re not, it will come out when you visit the bank. And that will be embarrassing for everyone. It will also dent the trust that you have built.

Collate both your financial information.

‍Before you apply for pre-approval, you'll need to gather some information about your income, expenses, and assets. This might include things like your W-2 forms, pay stubs, bank statements, and tax returns.

Check your credit scores.

‍Your credit score is one of the most important factors that lenders consider when determining your mortgage pre-approval. It's a good idea to check your credit score in advance so you know what to expect.

Shop around for lenders either on your own or with a mortgage broker.

‍Different lenders have different requirements and interest rates, so it's a good idea to shop around to find the best deal. You can compare rates online, or you can work with a mortgage broker who can help you find the best lender for your needs.

Submission.

‍Once you've found a lender you're comfortable with, you can submit your application for pre-approval. This typically involves filling out an application form and providing the lender with the financial information you've gathered.

Review pre-approval letter.

‍Review the pre-approval letter. If you're approved, the lender will provide you with a pre-approval letter, which is an estimate of how much you can borrow. Review the letter carefully to make sure you understand the terms and conditions of the loan.

Put together a co-ownership agreement.

‍You can use our templates here. It will support you to make some decisions upfront about how you might manage your relationship and shared property before engaging with our partner lawyers.

Start house hunting!

‍Use the pre-approval letter to shop for a home. With your pre-approval letter in hand, you can now start shopping for a home with confidence, knowing that you can afford the properties you're looking at. You can use the letter as proof of your ability to get a mortgage to make offers on properties. Remember that pre-approval is not a guarantee of final approval, once you have a property and a purchase agreement, the lender will do a final review and underwriting of the loan.

Buying a House With Friends NZ

Buying a house with friends is one of the lesser common ways of buying property. But it is also one of the fastest growing ways to do so. And at Slice, that is what we are all about.

Home ownership shouldn’t be reserved for those in relationships. Buying with your friends is a great way to pool resources and build long term wealth together.

Advantages of buying a house with friends

Pool resources together

One of the main advantages is that it can help you to get into the property market with a low deposit. This can be especially beneficial for first-time buyers who may not have a lot of savings or equity built up on their own. By going in on a property with others, you can pool your resources and get into the market with a smaller deposit.

Protect your savings

You don’t need to put every cent you have into owning a property. Buying a property can be a significant financial commitment on your own or with your partner, and it can be easy to burn through your savings in the process. By going in on a property with others, you can spread the financial burden and reduce the risk of depleting your savings.

Share costs

When purchasing property on your own, you shoulder all associated costs, like legal fees, mortgage payments, and maintenance. Going in with others on a property can share these costs, making it more affordable and manageable. Thankfully, Slice can also help with the legal documents with templates and access to specialist solicitors who specialise in buying a house with friends and family.

Provide connection and support

Purchasing property can be stressful and challenging. Sharing the experience with others can help make the process more manageable. When you purchase a property jointly, you have support through the ups and downs. This can alleviate some of the burden and make the journey easier to navigate.

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Case study: Henry and his three friends are thinking of buying a house. They all work from home and they think it would be cool to have a place to hang out together. They are willing to put in $40,000 to find a four bedroom house. After using Slice to set up their co-ownership agreement and working with a solicitor, they start looking for a house within a budget determined by their pre-approval of $1.1 million.

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Risks of buying a house with friends

Everyone needs to be honest

Buying a house with a group of friends can be stressful especially as everyone needs to be honest throughout the whole process. You also need to ensure prompt payment, what happens when someone wants to sell, or another wants to buy another person out. Thankfully our co-ownership templates can help with all of that!

Agreement on the purpose of the property

Everyone needs to agree on the purpose of the property. Is it going to be an investment or is everyone going to live in it? What about some people living in it and some not? And who and what determines the rent? All of these questions need to be answered upfront.

Managing personalities

You might be best friends now, but things can change. One friend may get married and want to sell and buy their own house. Someone might be more risk taking whilst others risk averse. You need to account for this. This is why it is so important to have a co-ownership agreement and for it to be worked through with a solicitor.

Buying a house with your parents

The fifth largest lender in New Zealand is the bank of mum and dad. Many people rely on it to help them get onto the property ladder.

In my case, my mum had her own home, but I didn't have anyone else with cash to go in with me. However, I was aware of something called a guarantee or a limited guarantee, which is when a family member or friend guarantees a portion of your loan. This can be a great option if you have a good credit score but lack the savings or equity to get approved for a loan on your own.

Another option to consider is using Kainga Ora and NZ Housing. These organisations can provide support with your deposit and can even go in with you as a co-owner if you don't have a parent, family member, or friend to go in with.

However, we recommend exploring going in with someone you know first as you'll likely arrange more favourable terms, and if it's a parent, they may not even expect to go on the title.

When it comes to going in on a property with someone else, it's important to consider how you will benefit those who are helping you.

For example, my mum didn't have to put up any cash, but we agreed on a percentage share of the profit when I removed the guarantee and began paying that.

Alternatively, you could pay interest on any loan or lending you receive or allow use of that property to those who are contributing. There are many different options available, and it's important to find the one that works best for you and the person helping you.

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Advantages of buying a home with your parents

You will require a smaller deposit

Parents and family members can contribute in cash or in equity of their existing home(s). This is especially the case when you have a good credit score but not enough of a deposit. Your parents will trust that you can pay the mortgage repayments.

It’s in their interest to help you

Your parents typically want the best for you. Buying a house is one of the best ways in which they can do that from a financial perspective. Need we say more?

You will get more favourable terms

It is most likely that your parents will try and make things easier for you. This could include deferred payment or a lower interest rate on their investment. But also remember, they are contributing to your long-term wealth. You should consider ways in which you can pay them back in droves when you have the opportunity — even if they don’t expect it.

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Risks of buying a home with your parents

There are risks on both sides, especially if there is some form of financial mismanagement!

A need to enforce clear expectations

Support from the bank of mum and dad with more loose terms doesn’t mean that you don’t need to be financially prudent. And a large amount of equity might not be enough to make you a good risk from the bank’s perspective.

Parents also tend to have decreasing incomes as they move towards retirement. Look at ways that you can stand on your own two feet as fast as possible with your loan,

Being a guarantor is riskier than parents expect

Gifts or loans are a better way for parents to limit their liability if you they can afford them. Being a guarantor increases the risk for the parents.

Parents are often uninformed about how a guarantee actually functions. A guarantee's amount is frequently unlimited, even if restricted to the loan amount, it typically ensures all of a borrowing up to that limit, not just the original home loan.

This means parents legally accept liability for other debts incurred in their name, whether those debts were incurred before or after they provided the guarantee.

If a child loses the home, the parents are still stuck paying the loan they took out.

What next?

Buying a home can be relatively straightforward if you know what to do. Working with Slice is a great way to take that first step. Our handy co-ownership templates and solicitors can help you fast forward your planning and get you into a property in no time!

If you have any questions, feel free to reach out to us below.

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