SBS Bank: Bank of the Year First Home Buyers
Over the past year, lower mortgage rates, a chilled housing market and the easing of the loan-to-value ratio restrictions have meant the stars have aligned for aspiring homeowners. In response, FHBs have responded by taking a record number of new mortgages.
However, saving for a first home, and then maintaining that home, still requires a lot of budgeting, saving and financial discipline.
It also involves securing the right mortgage. And, currently, the first home buyer segment is a highly competitive space for mortgage lenders, who are actively competing for FHBs by offering them exclusive offers, cashbacks and competitive lending rates.
To help Kiwi FHBs navigate through the mortgage market, each year Canstar's team of analysts researches the main FHB mortgage lenders in the market, and awards the best its First Home Buyers Award. And once again, this year, our accolade goes to SBS Bank.
How is the Canstar First Home Buyer Award calculated?
Based on extensive research and a sophisticated and unique methodology, Canstar's Bank of the Year First Home Buyers Award recognises the bank that offers not only outstanding value home loans, in terms of fees and interest rates, but also great customer service. Specifically, this includes tools and advice that help FHBs make informed choices when making the biggest financial decision of their lives.
To be included in our award, financial institutions have to provide mortgage products that cover floating, 1-, 2- and 3-year fixed rate terms, including at 80% and 90% loan-to-value ratios (LVRs).
They must also offer a full range of banking products plus have face-to-face staff available, whether in branches or working as mobile lenders across the country.
How is the Canstar First Home Buyer Award calculated?
Canstar's research team considers five main categories, which follow a customer's journey through the life of their home loan:
1 Planning for a first home: how the institution supports consumers during the planning stages of buying their first home, through providing budgeting tools, access to property research facilities and the provision of competitive savings accounts to help saving towards a deposit.
2 Applying for and settling a first home: how the institution supports consumers in the application and settlement stages of the loan. The different application channels offered by the institution, the types of security available against the loan, and the range of guarantee and deposit options available.
3 Managing a home loan: considers day-to-day management of the loan, any variations to the loan that may be required and the total cost of the loan.
4 Getting home-loan assistance: how the institution supports consumers over the life of the loan. Considers the availability and forms of online and call centre assistance, and the physical presence of the institution through branches and mobile lenders.
5 Closing a home loan: the ease and cost associated with discharging the loan.
Lenders assessed for Canstar's First Home Buyers Award
This year's award research covered FHB mortgage products from:
- ANZ Bank
- ASB Bank
- BNZ
- Kiwibank
- SBS Bank
- The Co-operative Bank
- TSB Bank
- Westpac
Why SBS Bank is Canstar's Bank of the Year First Home Buyers
This year marks the fourth time SBS Bank has won Canstar's Bank of the Year First Home Buyers Award over the past five years and, again, the win is anchored by the lender's FirstHome Combo: an FHB-only package combining a discounted 12- or 24-month fixed rate with cashback, insurance and KiwiSaver incentives.
Our research team noted that SBS Bank's FirstHome Combo delivers standout total cost outcomes across one- and two-year fixed terms, which are the most popular fixed periods among New Zealand borrowers, and the most heavily weighted part of our assessment.
SBS Bank also participates in the Kāinga Ora First Home Loan scheme, which rounds out a result that reflects the bank's long-standing focus on FHBs.
SBS Bank's FirstHome Combo offers:
- A discounted 12- or 24-month fixed rate
- $3000 cashback
- $1000 contribution to an SBS home insurance policy
- Up to $1000 contribution to an SBS Wealth KiwiSaver account, or accounts
In addition to its FirstHome Combo, SBS also offers prospective FHBs the Skip app. The app provides support and advice to help Kiwis get into a first home faster.
And, importantly, it gives users the ability to earn up to an extra $2500 to put towards a first home purchase.
What help is there for first home buyers?
Apart from Kāinga Ora's First Home Loan there is other help available for Kiwis saving for a first home, including:
Help from the banks
If you buy a first home with an ANZ home loan (minimum of $200,000), you could get a $5000 cash contribution, as long as you keep your mortgage with ANZ for at least three years.
ASB gives FHBs $5000 cash, if they take out a home loan of $200,000 or more.
SBS Bank's FirstHome Combo offers:
- A discounted 12- or 24-month fixed rate
- $3000 cashback
- $1000 contribution to an SBS home insurance policy
- Up to $1000 contribution to an SBS Wealth KiwiSaver account, or accounts
In addition to its FirstHome Combo, SBS also offers prospective FHBs the Skip app. The app provides support and advice to help Kiwis get into a first home faster. And gives users the ability to earn up to an extra $2500 to put towards a first home purchase.
The Co-operative bank offers a first home buyer special discounted rate for the first year, plus a 1% cashback. A minimum loan of $250,000 and equity of 20% applies, or 5% if a Kāinga Ora First Home Loan.
KiwiSaver withdrawal
If you've contributed to KiwiSaver for at least three years, you'll be able to withdraw most of your money to help buy a first home. If you've a partner who has also been a member of KiwiSaver for at least three years, they can also withdraw their savings to put towards your first home.
You can take out as much as you choose, but you must leave a minimum balance of $1000 in your account. You must also live in the house that you buy for at least six months. It can't be an investment property.
Shared equity schemes
If you are unable to save a deposit to purchase a house outright, shared equity schemes could smooth your path into a first home.
Shared equity schemes are offered by housing associations, such as the New Zealand Housing Foundation and Te Tumu Kāinga.
Shared equity schemes allow you to buy part of a home. Typically you purchase the majority share of a dwelling, 60% or more, and the housing association purchases the rest of the home. You then have up to around 15 years to purchase the housing foundation's share. Usually, most households are able to do this within 10 years of the initial purchase.
Some key points to consider include:
- The choice of mortgage lenders offering loans for shared equity schemes is limited. Plus applicants often have to pay extra for their mortgages, through Lenders' Mortgage Insurance.
- Price caps apply for homes available under shared equity schemes
- Although there is no direct fee to pay when using a shared equity scheme, you must pay market value for the housing foundation's share of your home. So if the price of your home increases by 10%, it will cost that much more to buy out your partner scheme's share.
Rent to own schemes
Another type of scheme offered by some housing associations is rent to own. One example of a rent-to-own scheme is offered by The New Zealand Housing Foundation. It is open to FHBs and offers extra opportunity to save for a home deposit.
The scheme provides a home for you to rent, but gives you the option of purchasing the home after you’ve been renting it for five years. You can either buy it outright or use a shared-equity scheme.
One great plus of The New Zealand Housing Foundation's rent-to-own scheme is that if the home increases in value over the five years you are renting it, the foundation will give you 25% of the property's uplift in value to put towards your home loan.
You can check out more details about The New Zealand Housing Foundation's Rent to Own program here.
Kāinga Ora's First Home Loan
The First Home Loan is a financial support program offered by Kāinga Ora. Most lenders currently require a minimum 20% deposit for a home. But with a First Home Loan you only need a 5% deposit. This is because Kāinga Ora underwrites the loan, allowing lenders to provide loans that would otherwise sit outside their lending standards.
First Home Loans are issued by several lenders, including: ASB, Kiwibank, SBS Bank, The Co-operative Bank, Westpac and Unity.
Can anyone get the First Home Loan?
No, to be eligible for the First Home Loan you must meet strict criteria. So it's not for everyone. Below is an overview of the key requirements:
- Income cap – a maximum yearly income of up to $95,000 (before tax) for one person. A combined maximum yearly income of up to $150,000 (before tax) for two or more applicants, or a maximum yearly income of $150,000 for an individual buyer with one or more dependants
- Minimum deposit – a minimum 5% of the purchase price of the house you want to buy
- You must live in the home you buy – a First Home Loan cannot be used to buy an investment or rental property
- You need to pay Lender’s Mortgage Insurance + any loan application fees – this premium is 1.2% of the loan amount and is usually added onto your mortgage. You can read more about Lenders' Mortgage Insurance here
- FHBs only – or you can be a previous homeowner who is in a similar financial position to a typical first home buyer
- You must be an NZ citizen – or permanent NZ resident or a resident visa holder who is ordinarily resident in NZ
- Small(ish) property – must be purchasing a property of less than one hectare
- Not own any other property or land - this does not include ownership of Māori land
You can get more details from the Kāinga Ora website here.
How much deposit do you need to buy a first house?
Although you can buy a home with a deposit of as low as 5%, it's preferable to save at least a 20% deposit for a home for three reasons:
- Your mortgage application won't be restricted by the loan-to-value ratio (LVR) restrictions
- Lenders reserve their lowest mortgage rates for home buyers with at least a 20% deposit
- You'll not have to pay extra costs, such as a low equity premium (LEP) or lenders' mortgage insurance
What are the LVR restrictions?
An LVR refers to the size of a loan compared to the value of the property it's used to purchase. For example, if you buy a home worth $1 million with a $300,000 deposit and a $700,000 mortgage, this means 30% is coming from you, and 70% from the bank, which is an LVR of 70%.
Because low-deposit mortgages come with greater risks for banks, the RBNZ sets limits on banks' low-deposit lending. At the end of last year, the RBNZ increased the amount of low-deposit lending banks are able to make:
- 25% of owner-occupier lending to borrowers with an LVR greater than 80% (up from 20%)
- 10% of investor lending to borrowers with an LVR greater than 70% (up from 5%)
LVR new build exemption
Loans to those building a new home are exempt from the LVR rules. If you buy at an early stage of construction, or buy from a developer within six months of completion, the LVR rules will not apply to your loan application.
Currently, NZ is building a lot of smaller townhouses and apartments. For FHBs, new homes such as these are a more affordable option, and buying off the plans will exempt you from the LVRs.
Banks can still accept low-deposit applications
Even with the LVR restrictions in place, banks are still able to process low-deposit home loans. They are just limited to 25% of their new lending.
If you’ve a good income and a secure job, and can prove to a lender that you’ve a solid financial head on your shoulders, you could still find a lender willing to grant you a mortgage.
NB: It's also worth noting that only registered banks in NZ have to adhere to the LVR rules. Non-bank lenders can set their own limits, although many non-bank lenders charge higher interest rates than the big banks.
The hidden costs of buying a home
If you're buying a first home, you can be forgiven for thinking the only costs involved are the deposit and the mortgage. But unfortunately, there are hidden costs of buying a home that can add thousands of dollars to the cost of buying a home.
They include:
Building report
A building report from an accredited professional is your safeguard against buying a lemon, as the last thing you want to do is pour your hard-earned cash into a house that has hidden defects.
The Real Estate Authority (REA) advises that house buyers choose a property inspector who has professional indemnity insurance and carries out work that meets the building inspection standard (NZS 4306: 2005).
You can look for qualified inspectors at the following websites:
- New Zealand Institute of Building Surveyors
- Building Officials Institute of New Zealand
- New Zealand Institute of Building Inspectors
The cost of a building inspection depends on the size and style of a property. Prices start from around $550, for a simple one- or two-bedroom home. But for a larger property, you can expect to pay hundreds of dollars more.
LIM report
A property's LIM report is prepared by its local council. It is a summary of all the current property information held by the council on the day the LIM was produced. In covers everything the council knows about the property and the land it stands on.
A LIM includes information on some or all of the following:
- Stormwater and sewage drains
- Any Heritage New Zealand protection
- Special land features, such as erosion or flooding
- Any rates owing on the land
- Permits, building consents or requisitions, and other certificates previously issued by the local council or building consent authority
- Notices to the council given by any network utility operator under the Building Act
- Zoning – how the land may be used and any conditions that apply
- Any notices to the council by a statutory organisation that has the power to classify land or buildings for any purpose
- Any other information that the council thinks is relevant
Buyer beware: The vendor or their real estate agent might provide a LIM report for no charge. However, if the LIM is not current, it might not record any new problems that have arisen since it was drawn up. So if the LIM on offer is more than a few weeks old, then it's recommended you obtain a fresh copy.
LIM report costs:
Nationally, prices range from around $300-$900. For example, here are the costs of LIM reports from:
Auckland City Council:
- Standard LIM: Up to 10 working days – $387
- Urgent LIM: Up to 3 working days – $522
Christchurch City Council:
- Standard LIM: Up to 10 working days – $320
- Urgent LIM: Up to 5 working days – $420
Dunedin City Council:
- Standard LIM: Up to 5 working days – $345.45
- Urgent LIM: Up to 3 working days – $403.20
Wellington City Council:
- Standard LIM: Up to 10 working days – $575.50
- Urgent LIM: Up to 5 working days – $863.50
Lawyer/conveyancer
Lawyers and conveyancers are skilled at finding problems in sales contracts and property titles. They also deal with all the complicated legal paperwork involved with the home-buying process. Whether you're buying privately, or though an agent, you'll need to pay for their expert services.
Legal fees can range from a few hundred dollars into the thousands. It all depends on the type of property you're purchasing and the processes your transaction requires.
Whether you choose a lawyer or a conveyancer, ensure you discuss your needs and their fees up-front. You can search for property lawyers at the website of The Property Law Section, which is part of the New Zealand Law Society, or at the NZ Society of Conveyancers website.
Other costs associated with buying a house:
- Low equity premiums (LEPs): for those with less than a 20% deposit, some banks charge LEPs as annual extra interest charges, which can add up to an extra 1.75% p.a. Other lenders simple offer higher standard rates to low-deposit lenders. You can read more about LEPs here.
- Lenders' mortgage insurance (LMI): home buyers with deposits of less than 20% sometimes have to pay LMI premiums, which are usually added to the loan. You can read more about LMI here.
- Appliances: unless the home's appliances are listed as chattels as part of the sale, you might need to buy new kitchen appliances, such as an oven or dishwasher.
- Rates: buyers need to budget for water and council rates
- Utility connection fees: utility companies usually charge connection fees
- Moving expenses: even the cost of two men and a van can add up, especially if multiple journeys are required
- Repairs and maintenance: will you need to make any urgent repairs or changes to the home once you move in? If repairs are needed, be sure to factor them into your price negotiations
- Home insurance: if you have a mortgage, home insurance is compulsory
- Your time: the home-buying process can be long and exhausting. It can involve lots of driving visiting open homes, and often time off work
What is settlement day?
Settlement day is the date when the property you've purchased officially becomes yours. It's also the day that you have to pay the balance of the purchase price, when the remainder of your deposit and any mortgage money you've borrowed is transferred to the seller.
Typically, it takes place around four to six weeks after you sign the sales agreement. But it's not unusual to see a settlement as short as 10 days after an auction. Or if you buy off the plans, and your home hasn't been built yet, settlement could be months, if not years, away.
Do note, that if you think you'll need a longer settlement, you need to arrange this before signing the sales and purchase agreement.
A checklist of steps to take prior to settlement day, includes:
- Arrange to inspect the property before settlement day. This is the pre-settlement inspection
- Make sure your purchase finance is in place
- Organise your home insurance
Arrange to inspect the property before settlement day
A pre-settlement inspection, which you arrange through the seller's real estate agent, allows you to give the property a final onceover. During the inspection, check that the chattels are in the same condition as when you signed the sales and purchase agreement, and that there's no new damage.
Arrange the inspection for at least two days before settlement. This gives the owner time to remedy any potential issues – either by fixing or deducting money from the final amount owing. If the property is tenanted, the landlord might need extra time to get the tenant's consent for an inspection.
It's a good idea to take a copy of the sale and purchase agreement to the pre-settlement inspection, so you can refer back to details about the home's conditions and chattels.
What to look out for during your inspection:
- Check that all the chattels included in the sale are in good working order, unless earlier specified
- Check that the lights and curtains work. If you put maintenance work in as a condition of sale, make sure that it has been completed
- Ensure all keys, garage door remotes and security alarm codes are accounted for and will be available to you on the day of settlement
- Check that the previous occupant has removed all their belongings and rubbish
If you do uncover any new issues or damage during your pre-settlement inspection, contact your lawyer or conveyancer immediately. Remember, the property doesn't officially change ownership until settlement day, and you do not need to make the final payment until any issues are resolved.
Make sure your purchase finance is ready
In a standard property sale, you pay the first part of the deposit when you exchange signed copies of the sales and purchase agreement with the seller (the vendor). If you buy at auction, you'll sign the contract and pay a deposit on the spot. Once you've exchanged signed contracts and paid the deposit, the contract is legally binding. But you do not technically own the property.
On settlement day, you pay the remainder of the cost of the home: the rest of your deposit, and any mortgage money you've borrowed.
If you're putting a KiwiSaver withdrawal towards your deposit, make sure you have completed all the required paperwork ahead of time, so that it can be withdrawn for settlement.
Your lawyer or conveyancer can help you with the KiwiSaver withdrawal process.
Your property insurance needs to be in place
Lenders may require you to arrange property insurance as a prerequisite for finance. You need to arrange insurance before settlement day. This way, your property is insured from the moment you take possession.
Your lawyer or conveyancer will ask for evidence that you have insurance. As with all financial products and services, Canstar recommends you research insurers and policies.
Prior to settlement day, you'll need to visit your legal appointee to sign an authority to transfer the property title, as well as your bank's home loan and finance agreements, if you are using a home loan.
Other practical things to think about before settlement day
- Book a moving company if you're using one and plan the move. It's best to book the move for the day after settlement, in case there are unforeseen issues or delays on the day
- Plan care for children and pets on the day
- Leave time to clean your new home before you move in your furniture
- Arrange transfer of services including internet, electricity and gas
- If you are renting, notify your landlord that you're moving and apply to get your bond back
- Change the address of your contents insurance (if you already have it). Make sure it includes cover during your move.
What happens on settlement day?
On settlement day, there are still a few important administrative details to take care of before you get the keys:
- Your lawyer or conveyancer will pay for the property (using the authority you signed a few days earlier). The money is paid to the seller, via the seller's lawyer or conveyancer, who gives your lawyer or conveyancer a receipt for payment.
- When this is completed, your lawyer or conveyancer will tell you the sale has gone through. You can then collect the keys from the seller's lawyer, conveyancer or from the estate agent.
- The seller's lawyer or conveyancer will release documents to your lawyer or conveyancer. They will arrange for the transfer of ownership and to have your details and the details of your bank or lending company recorded on the record of title.
Most settlements go smoothly, but if you do face any issues, your legal appointee should be your first port of call. They can answer any questions and help you to negotiate with the seller to remedy any issues.
