Five things to know if you want to buy a house next year

Susan Edmunds looks at actions you can take now that mortgage brokers say will improve your chances of success.

Is 2022 the year you buy a house? Prices have increased at a frenetic pace over the past couple of years, going up about 30 per cent year-on-year in October. But there are signs that the market is cooling.

First-home buyers have been snapping up properties, making up more than 26 per cent of the market in the September quarter – their highest proportion ever.

If you want to buy a house in the coming months, brokers say there are some things you can do now to make the process easier.

Get your accounts in order

New rules to be introduced next month mean banks will have to apply more scrutiny to loan applications. This means you will probably need to explain anything even slightly unusual in your bank account history.

Bruce Patten, an adviser at Loan Market, recommends potential buyers do a budget so they can show a lender where their money is going and what they are spending it on.

‘‘Make sure your rent and your savings are equivalent to what your mortgage payments will be. For example, if you are going to borrow $1 million, it’s going to cost you approximately $1200 per week. If you are paying $700 per week in rent, you should also be saving at least $500 per week. This shows the lender that you can afford the new mortgage.

‘‘Reduce your spending on unnecessary things. The banks now look at all fixed expenses when calculating what you can afford. If you don’t need Netflix or Lightbox, cancel it.’’

Broker John Bolton, the founder of Squirrel, said people should be wary of taking on more debt. ‘‘Avoid buy-now, pay-later [schemes] like Afterpay over the Christmas break.’’

Check your credit score

Some people only find out about dodgy things in their credit history when applying for a loan. One first-home buyer discovered she had a parking fine incorrectly attributed to her and sent to a debt collector. She was able to get the default removed from her credit record but only after she had already been turned down by one bank.

Check your credit rating and query anything that’s not right.

Patten said it was important to keep on top of all commitments if a home loan application was in your future. ‘‘The bank now has visibility of your payment history for the last two years. It can see if you are paying personal loans on time, credit cards with other lenders, phone bills, power bills.’’

Be savvy about banking

When it comes to applying for home loans, you can maximise your chances by spreading your banking around so that you are a customer of a number of banks.

‘‘If you are a couple, split banks By having two banks you improve your odds. Talk to a mortgage broker first. You’ll need a minimum of three months’ salary paid into an account to be considered your ‘main bank’ but with some banks it is six months,’’ Bolton said.

Consider what to buy

The new loan-to-value ratio rules that limit low-deposit lending make it harder to get loans on existing homes. But if you are open to other options, you might find the path to a first property a bit easier. Bolton points out that off-the-plan and new-build properties are exempt from the rules, so you should be able to get a loan with a smaller deposit.

Sort your KiwiSaver

Check your KiwiSaver account status – sharemarkets have had a great few years, which will have boosted many people’s balances.

What sort of fund are you in? If you’re planning to withdraw your money within the next year, it might be sensible to dial down your risk. Your provider should be able to talk you through the process of withdrawing money when you’ve identified a house you want to buy.