Being able to borrow enough money for a first home is the biggest financial hurdle for young couples. When lenders consider how much they can lend they consider two key aspects. The first is how much money the couple have as a deposit and the second is the amount of borrowing the couple can afford to repay out of their income. Any couple looking to buy a home needs to consider how to get in the best possible shape with regard to both aspects.

Many young couples are good at getting a deposit together using a combination of savings, KiwiSaver, grants and gifts from parents but they overlook the importance of being able to show the bank that they can service their debt. Debt includes not just the mortgage but any other debt – car loans, personal loans, credit cards and store cards. The problem with this debt is that it is short term and usually with a high interest rate and high repayments. This eats into income, so that there is less money available to service a mortgage.

Short term debt is one of the biggest hurdles to home ownership and it can easily get out of hand. Because the repayments are so high, there is not enough left over for savings. This means that when there are unexpected expenses, more debt is incurred and the problem gets event bigger. There are not enough spare funds to get rid of the debt, and so it becomes a vicious circle.

It can be helpful to consolidate short term debt and stretch out the repayments over a longer time period to free up money to make mortgage payments. Of course, the best strategy is not to take on short term debt at all if you are thinking of buying a first home.