When you’re buying your first home you will come across a lot of jargon. To help, we have singled out some of the most common property terms and created a glossary below.
Auction: At an auction you bid against other people who want to buy the same home. Usually the seller has a “reserve”, which is the minimum price they require. If the bidding goes above the reserve the property is sold to the highest bidder. Auctions are almost always unconditional sales meaning you can’t back out. Auctions are one sale method. Other common methods include negotiation, deadline sale, and tenders.
Body corporate: Buildings such as apartments and flats, which are “unit titled” (meaning you own your own parts of the building, but share common areas such as lifts and gardens) have a body corporate. The body corporate is responsible for maintaining the shared areas, insuring the property, setting rules, and holding a register of unit owners. A body corporate is often managed by a third party company. Each homeowner is a member of the body corporate and can vote at annual meetings. Homeowners pay annual body corporate levies, which cover maintenance of the shared areas and external structure of the building, insurance and other costs of running the building.
Building report : A pre-purchase building report is carried out by a builder or other professional such as a surveyor, who inspects the house to identify any defects. Issues highlighted in a building report can sometimes be used to negotiate the sale price down with a seller. If your sale and purchase contract has a relevant building report condition in it you may be able to pull out of the deal if the building report identifies significant issues.
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CCCFA: The Credit Contracts and Consumer Finance Act (CCCFA) is a law that protects consumers from borrowing more than they can afford to repay. The CCCFA sets out rules that lenders are required to follow to ensure you do not get yourself in too much debt that you cannot afford to pay off.
Chattels: These are removable items that are sold with a house. It can include things like carpets, light fittings, stove, aerials, and curtains. The sale and purchase agreement lists chattels included in the sale.
Conditional/Unconditional: The sale and purchase agreement may be “unconditional”, meaning there are no conditions once it is signed, or it may be “conditional”, meaning you can pull out in certain conditions such as not being able to secure a home loan (AKA “subject to finance”) or issues highlighted in a builders report are not met. In most cases auctions are unconditional, although vendors will sometimes vary conditions in the standard auction contract.
Conveyancing: This is the legal process around buying a home and having the property transferred from the seller to the buyer. Conveyancing is carried out by a lawyer, or a conveyancer.
Exchange and settlement: Exchange of contracts is the point at which both buyer and seller sign the contract, binding them to the sale. Settlement usually comes around six weeks later and it is the day when the money and ownership of the home changes hands. Once settlement has taken place on settlement day you can move in.
Auctions are a popular way to sell properties in New Zealand. Photo / Getty Images
Freehold/Leasehold: Most homes in New Zealand are freehold, meaning you own the land underneath the home. Some properties are leasehold, where you own the building, but pay annual “ground rent” to the owner of the land. Leasehold is more common with apartments than standalone homes.
Interest rates: Interest rates are the amount a lender charges a borrower on the money it has lent, expressed as a percent. A 5% interest rate, for example, on an $800,000 loan amounts to $40,000 per year, or $3333 per month. Interest rates may be fixed at a certain percentage for a number of years, or floating (variable), which means they can go up or down at any time.
KiwiSaver First Home Grant: The First Home Grant is a government grant for first-home buyers who have saved into KiwiSaver for three or more years, earn less than a certain sum annually, and are buying a property under the relevant cap for the region they live in. For buying a second-hand home, the grant is $1000 per year from the three-year savings mark, capped at $5000 for five years. The grant is doubled for buying a brand-new home to $6000 and $10,000. If two or more people are buying the home together they can each qualify and combine their grants.
KiwiSaver withdrawal: The First Home Withdrawal scheme enables first-home buyers and others in a similar financial position to withdraw all but the last $1000 of their KiwiSaver funds for the deposit or towards settlement on top of any First Home Grant entitlement. There are no income or house price caps. All first home buyers qualify.
LIM report: A Land Information Memorandum is a comprehensive report containing a summary of information known by the local council about the property . LIMs include information such as zoning, hazards, building consents, positioning of storm water or sewage pipes, and a variety of other data. It is a good idea to get your lawyer to review the LIM before you sign the sale and purchase agreement.
Loan to Value Ratio (LVR): This tells you the percentage of the property price that the bank is willing to lend. For example, if you are buying a $1m property and the LVR is 80% you can borrow 80% of $1m, which is $800,000. That means you will need a 20% deposit of $200,000 to make up the purchase price. The Reserve Bank of New Zealand (RBNZ) sets the LVR rules, limiting banks to lending certain percentages such as 90% on new homes 80% on second-hand ones. Non-bank lenders such as finance companies are not subject to the RBNZ rules and can set their own LVRs.
Most people will need to get a home loan – or mortgage – from a bank to buy a property. Photo / Getty Images
Mortgage adviser (broker) : Mortgage advisers are independent and work with borrowers to source home loans from banks and other lenders. Mortgage adviser’s services are generally free to use in New Zealand. They make their money by earning commissions direct from banks when they place your loan. Mortgage advisers are especially helpful for borrowers who are struggling to find a bank willing to lend to them.
Mortgage (home loan): a loan from a bank or other lender to buy a house. The words mortgage and home loan mean the same thing.
Negotiation: When a house is sold by negotiation, buyers make offers which sellers can accept or countersign (counter offer) with a figure lower than their previous price, but higher than your offer. Buyers and sellers continue making offers and counter offers until a sale price is agreed. Homes for sale by negotiation may be listed with a price, or call for offers.
Pre-approval: This is preliminary approval by a bank to lend up to a certain sum of money on a home. The pre-approval gives you an idea of how much you can afford to pay for a home. Even with pre-approval you still need to meet the bank’s conditions, such as income and buying a property that meets its criteria. Pre-approval expires after a set period of time such as three or six months.
Reducing balance loan: A reducing balance home loan is similar to a table loan but has higher repayments at the beginning because you’re paying off more capital each fortnight or month. As the outstanding capital (balance) owed to the bank goes down, so too does the amount of interest paid.
Revolving credit loan: A revolving credit home loan is like a giant overdraft and becomes your everyday account. When your wages or salary are credited to the account each month the outstanding balance is reduced, meaning you pay less interest. For the portion of the month that your spending money is in the account, the outstanding balance is lower meaning you pay less interest. The loan agreement will require that you reduce the outstanding balance by a minimum amount every year. You need to be very disciplined for this sort of home loan to work, but it’s an option for those who are financially prudent.
Sale and purchase agreement: This is the contract you sign with the seller (vendor) when you buy a home. It is legally binding, meaning once you have signed, you cannot pull out. Most sale and purchase agreements in New Zealand are relatively standard. But make sure you get the agreement checked by a lawyer before signing. Buyers who win at auction will be required to sign the sale and purchase agreement immediately at the end of the auction.
Table loan: Table loans are one type of home loan. With table loans, you pay a fixed amount each fortnight or month. In the beginning, most of the table loan payment is interest, but as the outstanding balance slowly reduces, a greater portion of the repayments goes to pay off the capital. Other types of home loans include reducing balance loans and revolving credit loans.
- For more information, check out our First Home Buyer Property Guide.
