General Finance

In the quest to purchase your first home you’ll probably notice that some properties are advertised using different values, all of which can differ quite drastically.

While your bank probably uses its own appraisal methods to calculate your home loan rates in NZ, it’s still a good idea to know what the various terms means. Let’s take a look at the differences between two of the most common values: rateable value and market value.

What is a property’s rateable value?

A home’s rateable value (sometimes referred to as a government value or, in Auckland, a capital value (CV)) is essentially how much the government thinks the property is worth, and is used to determine rates.
It is calculated based on three key factors:

• Capital value
• Land value
• Value of improvements

It’s important to note that rateable values are generated automatically via electronic analysis, a process that only takes place every three years. Consequently, the rateable value can be considerably higher or lower (sometimes by as much as 50 percent!) than a property’s true worth, and is not a good metric for assessing how much a home will sell for.

What is a property’s market value?

Market value is simply the amount of money that a prospective buyer are willing to pay for a house. Property valuers take a bunch of things into consideration when working out this value, including:

• Current economic climate
• Property sales statistics
• Interest rates
• Potential use of the land

To work out the most accurate market value of a property, you may want to enlist the services of a professional, though it is possible to do your own research and get a pretty good idea of what a home is worth. This makes it easier to start looking for the best mortgage and see if you can afford the repayments.

Happy Saving,

The PocketWise Team

It’s absolutely true that putting down a larger-than-necessary deposit can help you save big on interest, but in some scenarios (high rents, good rates, favourable market conditions and so on) you’ll do whatever it takes to get that first foot on the property ladder.

In this series of articles, we’re going to cover the absolute bare minimum you’ll need to buy your first home:

Minimum deposit

As it stands, most mortgage providers in Aotearoa require a minimum deposit of at least 20 percent of the amount you want to borrow. Therefore, if you’re buying a property for $650,000, you’ll need to put down a deposit of at least $130,000. This deposit essentially covers the risk the bank is taking on by granting you a loan.

Even though deposit requirements are similar across most lenders, rates can vary substantially, so it’s always a good idea to compare mortgage rates in New Zealand before signing anything.

Are there any other options?

No matter how you look at it, a 20 percent deposit is a big chunk of cash, and many first home buyers struggle to save up the full amount. If this hits close to home, the good news it that you do have some options:

• Loan guarantee: Under this arrangement, you borrow up to 80 percent of the property’s value from the bank using the property as security. The remaining amount is borrowed against the equity in a guarantor’s (often your parents or another family member) property.
• Construction loan: In recognition of a housing shortage in many parts of the country, the government has implemented different rules for new properties. If you’re building a home and are going to live in it, many lenders will require a deposit of just 10 percent.
• Buy as a collective: It’s also possible to split the upfront costs by combining your savings and buying a house with friends.

Stay tuned for part two, in which we’ll tell you how to make the most out of Kiwisaver.