How much deposit do you need? You're going to need a 5 or 10% deposit. You might have read some articles recently about 5% deposit home loans. They've been available for a while, but generally 10%, and you're going to need to have limited or no debt.

The 5% that you need as a minimum, whether you have 5% or the 10%, at least 5% must be saved. What I mean by saved is that it must be either KiwiSaver or cash savings, or you sell a vehicle that you own. Either way it has to be cash or KiwiSaver.

So, KiwiSaver, just to describe KiwiSaver and how you can use it to purchase your first home. If you're in a PAYE job (a salary or wages), if you contribute 3% which is the minimum, your employer will match your contributions minus tax which generally means it's 2%. If you contribute 3, your employer will contribute 3 minus tax which is 2, and you can build up your KiwiSaver balance. After three years of contributing, you can withdraw all your KiwiSaver to purchase your first home.

So, you can withdraw all your contributions, your employer contributions, the government tax credit - which is if you contribute $1,042 the government will give you $521. So just to repeat that, if you contribute the minimum amount $1,042 the government will give you $521 in any given year. You can withdraw that as well and you can withdraw any investment returns. So basically, you can withdraw all your KiwiSaver money to help you purchase a first home. You just have to leave $1,000 in your account.

So probably when I'm dealing with first-time buyers, KiwiSaver is a very good form. It's obviously savings, but in a kind of way your employer is helping you purchase your first home, right? Because they're giving you some money towards that. So, that's a little bit about KiwiSaver, we can talk more specifics about that if at some point you'd like.

When I conduct strategy sessions with clients, when I'm having consultations with clients, I ask the client if they're saving or not. Are they saving? And the kicker is I ask them actually if they have a budget.

A budget is knowing what you spend, that's all a budget is. I can tell you 85% of people say no. A lot of people don't have any idea what they spend. But if you don't know how much you spend, how can you work out how much you can save? And if you can't save, how are you going to purchase a property?

All right, so it seems a bit harsh, but I'll give you an example. Let's say, if I was speaking to somebody and they told me they're on $80,000 gross per annum, that's about $5,000 a month after tax and KiwiSaver contributions. And then if I asked them what rent or board they were paying, and I took that off of the 5,000. I could then ask them, “are you saving?” And if they said no and I said “Well, you must be spending everything.”

So, it's very simple if I ask somebody what their gross salary is, and I work out the net. The net per month or per fortnight, I take off the rent and board that you're paying. And if they tell me that they're not saving, they're spending everything. Very easy calculation.

So, and then I ask them, “Well, how are you going to take on a debt if you currently have no surplus? You're going to or you want to take out a mortgage to purchase a property. You're wanting to take on a new liability or a new mortgage, a new debt. But you currently have no surplus. At the end of the fortnight or the end of the month. So again, do you have a budget?”

Okay, so what I mean by budget is do you know what you spend? The biggest problem I see with consultations and mortgage applications in general is overspending. People not knowing how much they spend. And budgeting is boring and its painful, okay. But I can tell you it's the golden ticket to purchasing a home. It'll also contribute towards your general well-being. Being able to manage your money better, it'll reduce your reduce stress and also give you buffer.

Now, it doesn't mean you need to count every cent, okay. You don't have to choose between a small coffee and a medium coffee okay, things like that. You still need to have fun and enjoy yourself. But you need to be aware of what you're spending. And if you have a budget, it will help you save as well. It'll also help your affordability as well, in terms of purchasing your first home.

I just want to share with you a little example, extreme example that I had when I met a barrister, which is kind of like a senior lawyer once and he was in his 60s. He wanted to purchase his first home, true story, because he felt like time was running out. When I talked to him, I found out he had been on $400,000 per annum for like 20 years, 20-25 years. So really good income, been doing it for a long time, obviously really skilled and experienced professional. You would know his area of expertise inside out, right?

So, I said to him “Where's your savings or what have you been saving?” And he said he didn't have any. He had spent everything, so he had nothing. He didn't even own the vehicle he was driving. He had a car loan on it, and I think it kind of dawned on him that he had spent everything.

It sounds really good, right? He probably had a great time, but at the end of the day, he's got nothing to show for it. So, if he just had a little bit more balance, potentially he would have been able to buy something. But it hit him like a ton of bricks. And the thing is, they don't teach this sort of stuff at school, right?

So, then nobody teaches you how to do it. But you know, the last thing I'm going to finish on the subject is, since there's no limit to the amount you can spend, it doesn't matter what you earn. It only matters what you can save. Since there is no limit on what you're able to spend, there's no limit, right? It doesn't matter what you earn. It only matters what you can keep or save.

So, the news is that you need to be able to budget which is bad news. But the good news is we're here to help you do that. So, we help first-time buyers who are starting their journey and I can tell you it does actually change lives. It sounds boring, but it really helps and gives them money management into the future.

Let me know if you've got any questions regarding that. You can also post anonymously you should be able to. If you have questions when you go away today, you can obviously book a chat as well.

Matthew Dawe

Mortgage Broker | Financial Adviser

Phone: 027 321 4287

Email: mortgages@matthewdawe.com

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