I have come across many clients who rent in lovely areas and if you ask them why don't they buy - the answer I can't afford to purchase in the area that I want to live. So they just don't buy.

I have one thing to say on this... Assume a house price of $250,000 - you are trying to save a 5% deposit of $12,500, and you would get a mortgage of $237,500 to purchase the property.

If you wait one year and the house price goes up 10% (as it has been) the same house is worth $275,000. The 5% deposit would be $13,750 BUT the mortgage would now be $261,250 - an increase of $23,750.

Even if the market only rose by 5% (assuming a flat market) the house would still be worth $262,500 - a 5% deposit of $13,125 and a mortgage of $249,375, an increase of $11,875

In other words you are not saving as fast as the house value is increasing - the longer you wait the likelihood of more debt to purchase increases.

SO what are your options?

1. Go into partnership with a friend to buy in the area you want.
2. Realise you will need to move into a different more affordable area
3. Or stay renting in the area you like BUT still purchase a property in another area and have it as a rental property.

A partnership

This can be a great way to pool together resources - if you can both save the deposit then you can be responsible for half the mortgage payments - right?

Let's look at the example:

A purchase price of $250,000 - 5% deposit = $12,500 or $6,250 each. The mortgage would be $237,500 or $118,750 each (more than affordable).

So what are the risks?

Even though you would each be responsible for you part of the mortgage you are 'jointly and severely' liable - which means if the other party does not pay the mortgage you can be held responsible.

What if the other party wants to sell?In this case, you would need to take over their mortgage - which involves a new loan application, or find a new partner, which again means going through a new loan application process. If you can't do either, you would need to sell, and unfortunately in most cases where you are selling because you have to sell you may not come out in a favourable financial position.

Purchase in a more affordable area

This is your first home - it may not be in the area you want or the most perfect house but at least you will be an owner and it is a step in the right direction. Now you will want the property market to rise as you will now benefit.

Purchase a rental property

If you absolutely do not want to move into a property less that you expect, then at least still purchase and find some one else who will want to live in it.

Yes - there are will be many things you will need to find out before your purchase - but there are many professionals who can help you.

You will need to:

1.      Understand the rental market in a particular area - what makes a good rental

2.      What if the tenant doesn't pay the rent?

3.      What about tax laws?

And more...

Find a good investment coach who can help you decide.

Conclusion
Decide what category you will be in and go for it - as they say 'time is money'.

For further information please contact Connect Mortgages on:

1. 0508 more than mortgages

2. (09) 337 11 11

3. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

4. www.connectmortgages.co.nz

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