Comparison between buying in England and New Zealand.
While Hong Kong has grabbed first place in the undesirable race to be the most unaffordable city in the world to buy property, Auckland with its continuing growth in house prices and low income sits firmly in the top 10. The average house price in our largest city is around $613,000, with the average income at $75,100 (Demographia International Housing Affordability Survey 2015 – comparing house prices and income figures between 378 cities), meaning that it now costs eight times the average salary to buy a house. But how does this affect the Eastern Bay of Plenty?
While Auckland and many other regions continue with a situation where climbing house prices and shortage of available sale properties favour those who are selling, in many other provincial regions, including the Bay of Plenty, it is still very much a buyer’s market. Even taking out those particularly cheap homes in some regions, the average house price remains well below the Auckland affordability figure against a multiple of the average income. Many of our clients are pleasantly surprised when we advise them that the cost of their home loan repayments are often only a little higher than the amount they may be spending on rent. But of course, the cost of repayments is only one factor in being able to obtain a home loan to purchase property. For many people it is the lack of sufficient deposit or equity which creates the stumbling block. While it may be hard here, spare a thought for those who may wish to buy in Sydney where the average house price is 9.8 times the average income, or London, which is only slightly more unaffordable than Auckland, but has some other major differences in the house purchase game.
On a recent visit to the English capital, I carried out some research to do a comparison between those buying in the U.K and N.Z. The first thing to note was that interest rates are significantly lower in the Northern Hemisphere with 5 year fixed rate mortgages available at between 2 and 3%. However, entry level rates are often only for the first couple of years, increasing later in the loan term. Also, unlike New Zealand where banks will offer cash enticements to those taking up home loans, in London banks and mortgage lenders charge a fee which is usually between £1000- £1500 (This equates to around $2,000 -$3,000) for the ‘pleasure’ of borrowing funds. That is without the additional cost of lawyer’s fees and often additional lender charges, meaning that the overall cost to take out the loan works out even higher. That is of course if you have enough deposit to get the loan. When I was looking at adverts in the English newspapers, I noticed that the minimum deposit advertised required at least 30% of the house purchase price, and more often, the best deals were for those with a 40% deposit. Quite different to New Zealand, where there were complaints when the Reserve Bank introduced a requirement for a deposit of 20%.
Then there is the ugly practice of “gazumping”. In New Zealand, once an offer has been accepted and the conditions of the Sale & Purchase contract met, your purchase goes “Unconditional”, which means that, unless there is something out of the ordinary relating to the purchase, the house will become yours on settlement. However, in the U.K. a seller may decide to accept a higher offer from a new purchaser at any stage prior to the sale going through. Often the original buyer is left out of pocket, having paid legal fees to a lawyer and possibly purchasing items for their new home, only to have it stolen away from them at the last moment. Apparently in Brighton, on England’s South Coast, 1 in 5 sales are gazumped as vendors seek to gain extra money in a seller’s market. There is also the less common practice of “gazundering”, where in a quiet market, a buyer can decide to offer a lower price at the last minute. This can lead to pressure on the seller to take the lower amount, especially if they are in a chain of buyers whose purchases are dependent on the sale.
Isn’t it great to live in a place where a contract means what it says and that you can be certain that come settlement day your sale or purchase will go ahead exactly as you expect it to? It’s good to have the knowledge that once your home loan adviser has gone through the process with you, you can be comfortable with the affordability of your home loan today and in the future.
