COMMENT: For first home buyers and property investors alike, apartments remain a good option to consider. Returns tend to be higher than stand-alone properties and maintenance tends to be lower. They’re not for everyone but, if you like apartments, here are a few things to know about getting a mortgage to purchase one.
Deposit requirements for apartments are higher than stand-alone houses with a minimum of 20% usually required for units - even those newly constructed apartments - with only one bank considering applications with as low as 15% deposit. There is an exception to this rule, however. If you meet the criteria for a Kāinga Ora First Home Loan - which has income and purchase price caps - you may be able to purchase an apartment with as little as a 5% deposit. That could mean a potential purchase in Auckland with a deposit of just $25,000 to $35,000.
There are limited types of apartments that are acceptable to the banks, however. Leasehold apartments won’t usually be acceptable; they’ll need to be freehold units. Apartments with significant body corporate costs may add too much to your monthly outgoings and crash the mortgage application.
The minimum floor size of an apartment was, for quite a long time, around 50sqm. Any smaller than that and a deposit of at least 50% was typically required. Nowadays, most of the main banks will consider smaller apartments, often 38sqm to 40sqm.
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To most homeowners, 40sqm sounds horrifying, but to get on the property ladder, a few years in a smaller unit may be what is needed to grow some equity and pay down some mortgage debt.
Buyers outside an auction held at Ray White City Apartments in central Auckland. Photo / Getty Images
My suggestion for someone who is keen to buy an apartment to live in is to set their price band above $450,000, which will filter out cheap leasehold apartments, but under $625,000, which will capture the apartments suitable to meet the First Home Loan criteria. You could put the maximum price as high as $700k if you’re searching for a newly built apartment.
Aim for a minimum floor size of 40sqm and avoid properties with pools and gyms, which will increase body corporate fees.
Ideally, buyers should aim for apartments being sold by tender or by negotiation. These will be reasonably hard to find in Auckland but clever real estate agents will recognise that auctions put off first home buyers. If agents want to attract the most attention in that price bracket, “by negotiation” offers are the way to go, especially if the market begins to cool a bit.
A couple with a combined income of $150,000 should be able to afford the mortgage for an apartment priced in the $600,000-$700,000 range if they manage their expenses correctly. Now you know the minimum requirements for apartments by most of the banks, you can decide if they’re right for you.
- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.
