200,000 = three Auckland homes! Is this equation just wishful thinking?

As house prices soar, young married couples are probably among those facing the toughest dilemma. Having only recently started working, with modest salaries and limited savings, they face heavy mortgage repayments if they buy—and still cannot afford the home they really want. If they do not buy, their savings cannot keep pace with rising prices. Is owning a home impossible without relying on their parents? 

Absolutely not!

Today, YIJU shares a real example of a couple who used a total of 210,000 of their own cash and mortgage leverage to buy three Auckland homes over 5 years. We have also invited experienced specialist York Zhang (Zhang Yong) from Plaxo Mortgages to explain in detail how to make full use of mortgage leverage to achieve financial freedom.

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Meet the expert 

York Zhang (Zhang Yong) 

Chairman, Plaxo Mortgages

In 2006, York Zhang (Zhang Yong) founded Plaxo Mortgages to provide the Chinese community with loans for homes, construction, businesses, land development, cars and heavy equipment. Combining his mortgage broking expertise with his personal experience of living in New Zealand, York Zhang hopes to use Plaxo Mortgages to introduce more products suited to the Chinese community's circumstances and needs, train more outstanding mortgage brokers, and release more funds from Chinese clients' assets for reinvestment.

 

2016 year | First home | Owner-occupied | 600,000 NZ dollars

Wang and Lily both attended university in Auckland, graduating, starting work and marrying in 2013. After three years of frugal living, they had saved NZ$120,000 and felt that owning their own home was finally more than a dream.

At the time, Wang and Lily earned NZ$48,000 and NZ$43,000 a year respectively. Given their limited deposit, their mortgage adviser suggested that they start with an owner-occupied home costing around $600,000.

After comparing countless properties, the couple bought their first home with a 20% deposit—NZ$120,000—and a NZ$480,000 mortgage. Located in Glenfild on the North Shore, it had 3 bedrooms and 2 bathrooms. They occupied the master suite and rented out the other 2 rooms for income to ease their mortgage burden.

 

York Zhang(Zhang Yong) explains

Wang and Lily's concerns are shared by most young couples. They have steady jobs and reasonable incomes in Auckland, yet still hesitate to buy because they feel they cannot afford it. From our perspective, once you have saved the basic deposit, buying a home should be on the agenda. With sensible planning by a professional, the pressure of mortgage repayments is actually not very different from that of paying rent.

Another common mindset is being unwilling to settle for a home that is merely adequate, preferring to buy the ideal property straight away. Yet Auckland's average house price has more than doubled over the past decade, and savings can never keep pace with rising prices. Rents are also climbing, making it difficult to save a larger deposit while continuing to rent. And if you later have children or your parents come to visit, renting indefinitely is hardly a solution. It is more realistic to secure a place of your own first and gradually trade up— 

Just as Wang and Lily did, buy an ordinary home to live in once you have saved the deposit, and rent out rooms to ease the mortgage burden. Meanwhile, its value can continue to rise with the housing market, making further investment possible.

 

2019 year | Second home | Investment | 800,000 NZ dollars

New Zealand's property market maintained strong growth from 2016 to 2018. By 2019, the market valuation of Wang and Lily's first home had risen from NZ$600,000 to NZ$870,000. They had maintained good saving habits between 2016 and 2019, accumulating more than $60,000 in their savings account. Over those 3 years, their salaries had also risen to NZ$65,000 and NZ$58,000 a year.

How could they make the most of their savings and the increase in their home's value? Having watched Auckland house prices rise relentlessly, the couple felt property investment was the safest option. With their mortgage adviser's help, they topped up the mortgage on their own home by $200,000. Combined with their $60,000 in savings, this gave them a $260,000 deposit, allowing them to borrow again to buy a second property as an investment.

They eventually bought an investment property in West Auckland for around NZ$800,000. Although relatively old, it had plenty of rooms: 5 bedrooms and 3 bathrooms, with potential rental income of $720 a week. Meanwhile, reductions in the OCR had driven New Zealand mortgage rates steadily down since 2015. The rental income could fully cover the investment property's mortgage, with a small surplus as an added bonus.

 

York Zhang(Zhang Yong) explains

Wang and Lily were able to buy their second property mainly because of the increase in their first home's value. In other words, without that first home as the foundation, the rest of the story could not have unfolded.

Many people know they can borrow against a property's increased value, but few realise that even a property already bought with a mortgage can release that increase as cash through a mortgage top-up, with the funds then used where needed. Equity available for a top-up = property value × permitted loan-to-value ratio (LVR) − existing loan balance. 

In other words, if your existing home has value beyond the amount already borrowed against it, you can apply for a top-up to release that equity as cash. Of course, if the property has no mortgage but has increased in value, you can also apply for a top-up loan, provided you have a reasonable purpose and supporting evidence, and your income and application documents meet lending requirements. 

It is particularly important to note that lending depends on the borrower's borrowing capacity as well as the property's value. Banks assess that capacity through the borrower's income—in other words, your financial position. No matter how valuable the property is, it is no use without income. It is like having a very tall glass but no continuous water supply: however tall the glass, it remains empty and cannot be filled. Because income determines borrowing capacity, it is best to consult a mortgage broker before applying, to calculate whether your income and repayment capacity meet the bank's lending requirements.

 

2021 year | Third home | Owner-occupied | 1,540,000 NZ dollars

The period from late 2020 to early 2021 saw an explosive surge in New Zealand property prices. Homes near Wang and Lily's first owner-occupied property were selling for around NZ$1,200,000. Their second property, the investment home, was in the Mixed Housing Urban Zone under the Unitary Plan, with subdivision potential. Nearby property prices had also risen sharply, giving it greater potential for future capital growth than their first home.

Having had a baby, the couple wanted to plan for their child's schooling and buy a home in a good school zone. After discussing their finances and the buoyant property market with their mortgage adviser, they decided to sell their own home and use the proceeds to buy in a desirable school zone.

Their $600,000 home eventually sold for an excellent NZ$1,210,000. They used the $610,000 they had made, together with $30,000 in savings, as a deposit and borrowed NZ$900,000 to buy a home worth $1,540,000 in a good school zone. They retained the second property as an investment and continued collecting rent.

 

York Zhang(Zhang Yong) explains 

By now, your head may be spinning: with a top-up mortgage on the first home, how do you calculate the actual gain? With a mortgage still owing on the investment property, how do you work out your borrowing capacity for a third home? At this point, do not hesitate to pick up the phone and consult us. As long as you have a steady income, a professional mortgage adviser can put together a home-buying finance plan for you. With a budget established, you can confidently start viewing properties. When you find one within budget, act decisively and secure your first home. With further savings and sensible borrowing, that single property could well become two—or even more.

For an ordinary salaried worker in New Zealand, establishing a family home and building a future need not be difficult with a diligent approach to work, good saving habits and professional help.

Plaxo's White-Collar Loan service will tailor a lending plan to your circumstances and needs. This is more than a mortgage for your first property: it is a long-term plan for future growth, laying a solid foundation for you and your family to establish a home and build your future.

Plaxo's White-Collar Loan: a lending service tailored to salaried workers. 

For enquiries, call: 09 916 0116