Mortgage options for first home buyers.
There has been some tightening in banks' lending standards recently as the result of the Reserve Bank bringing in new restrictions on the number of low deposit home loans banks can issue.
Lenders will look at each applicant individually in terms of their key requirement – the ability to service the loan (pay interest and principal instalments). This will determine the loan amount and deposit required.
First-home buyers may have to front up with a deposit equal to at least 20 percent of the house value – that’s $60,000 for a house worth $300,000.
For deposit-challenged first-home buyers this can be a significant hurdle.
However, lenders can be willing to tap into another homeowner’s equity to support the loan. This doesn’t always mean that parents or grandparents have to guarantee the loan for their offspring’s first home (although some lenders take that approach). Sometimes it means the lender taking a small mortgage over the parents’ or grandparents’ home – one that’s equal to the size of the deposit. The repayments are then set up so the first-home buyer automatically pays this debt too.
If you’re considering offering this sort of help to a friend or family member, check the documents carefully and get independent advice that fully explains your obligations.
Another option for first-home buyers with few savings and a combined income of $120,000 or less for 2 or more buyers, or $80,000 or less for one buyer is Housing New Zealand’s “Welcome Home Loans”.
This scheme provides loans up to a regionally defined maximum with a 10 percent deposit required through approved providers (which include Kiwibank, SBS Bank, TSB Bank and selected building societies and credit unions). For Auckland the house price cap is $550,000, for Wellington, Queenstown, Christchurch and Selwyn District it is $450,000. Thames/Coromandel, Waimakariri, Hamilton City, Western Bay of Plenty, Hutt City (Lower Hutt), Upper Hutt, Kapiti Coast, Tasman/Nelson, Tauranga City and Porirua City also have a price cap of $450,000 and all other regions have a cap of $350,000.
Normal interest rates and other lending criteria apply. The scheme has been running since 2003.
You can apply for 2 types of assistance through KiwiSaver: a home start grant or what’s called a first-home withdrawal. You can apply for both – the home start grant is from the government's contribution to your scheme and the withdrawal is from your own contributions from your wages. These can also be combined to help provide the 10 percent deposit for the Welcome Home Loan.
KiwiSaver Home Start Grant: You need to have contributed to KiwiSaver for at least 3 years before you can apply for the home start grant. It's worth $1000 for each year you have saved with the scheme. The most you can receive is $5000 after 5 years although if you’re buying a new home the amount doubles to $10,000. It must be used on a first home, although there may be exceptions if you’ve owned a home before but are now in the same financial position as a first-home buyer.
The same income caps ($80,000 or less for a single buyer or $120,000 or less for 2 or more buyers) and house price caps as the Welcome Home Loan apply to the Home Start Grant.
You apply for the subsidy through Housing New Zealand.
KiwiSaver first-home savings withdrawal: You can also withdraw your savings from KiwiSaver to put towards a first home purchase after at least 3 years of membership. You may have to apply for pre-approval so you know how much you've got to work with. You can withdraw all or part of your savings, your employer contributions, investment returns and tax credits, but not the $1000 government contribution.
Not all funds offer the withdrawal option, so it pays to check with your provider. If yours doesn't offer withdrawal, you can easily transfer to one that does – but this may take some time.