In a blow to First Home Buyers, the Government has recently abruptly ended the First Home Buyers Grant.
First Home Buyers had previously been able to access up to $5,000 per person to go towards the purchase of an existing house or $10,000 per person towards a new build. Since 2017, an average of 12,000 first home buyers per year had accessed the grant, giving them a good leg up into the housing market.
The Governments reasoning for ending the grant is that they estimate they will save $245million over the next 4 years, $140m of which they intend to redirect into social housing.
So what options does that leave first home buyers with?
Most banks will lend first home buyers up to 90% of the purchase price of a home (with one bank recently improving on this and lending up to 95%). Banks require first home buyers who have less than 20% deposit to have at least 5% of the purchase price as ‘genuine savings’. Genuine savings can come from a Kiwisaver withdrawal.
The Reserve Bank of NZ (RBNZ) limits the amount of low equity home loans (that is anything without 20% deposit) to the point where most banks have to save those loans for their existing customers. Banks reach their RBNZ enforced limits and often shut the door to new low deposit applications. Generally the banks will charge a low equity fee, a low equity interest rate margin or both if you don’t have a 20% deposit.
Kainga Ora (the old Housing NZ Government department) has a useful first home buyer’s scheme called the ‘First Home Loan’. Several banks and lenders are signed up to this, the biggest of which are Westpac and Kiwibank. Via the ‘First Home Loan’, first home buyers can borrow up to 95% of the purchase price of their first home and the remaining 5% can come from a gift. A few things to note:
•Your before tax income in the previous 12 months has to be:
$95,000 or less for an individual buyer without dependants
$150,000 or less for an individual buyer with one or more dependants
$150,000 or less (combined) for two or more buyers, regardless of the number of dependants
For owner occupied homes only
For property sizes of less than 1 hectare
0.5% of the loan amount is payable as a fee to Kianga Ora
No low equity interest rate margin is applied
Bank affordability and other criteria still applies
Although the removal of the First Home Buyers Grant is now undoubtably making things harder for first home buyers, there are still options to get into the market. If you’re applying for a mortgage and have less than 20% deposit, your application will be looked at in minute detail so it’s essential to prepare yourself at least 3 months in advance so you can put a good looking application in front of the banks and possibly Kianga Ora. Contact us to find out more.
