Ineligible for first home loan scheme

First Home Loan scheme falls short

The government’s first home loan scheme is designed to help first home buyers, but across most of the country it’s becoming irrelevant.

Our mortgage advisers (“mortgage brokers”) have previously helped many young Kiwis gain homeownership with the First Home Loan (FHL) scheme back when the scheme was more accessible. First Home Loans are unwieldy and bureaucratic, with buyers having to provide much more information than with a standard bank loan – but they still got people into their first homes. Unfortunately, as house prices continue on the upward trend, the FHL price caps mean it is of no use in most cases.

Originally it was called the Welcome Home Loan which offered lending (a mortgage) based on a 10% deposit. It is now administered by government department Kainga Ora and offers lending based on a deposit as low as 5%.

Under the scheme, Kāinga Ora offers low deposit lending and it also allows borrowers to use gifted money (usually from the bank of mum and dad) for that 5% deposit, when commercial banks such as ANZ and Westpac expect at least 5% percent of the deposit to come from “real savings”, as in, they expect the savings to be built up with savings from a salary or other work. Because these loans are guaranteed by the taxpayers, First Home Loans are excluded from the Reserve Bank of New Zealand’s (RNBZ) restrictions on low-deposit lending – meaning banks in the scheme are confident to lend without getting themselves offside with the RBNZ, who regulate them.

What is the current price cap situation?

Over the past year or so as house prices have continued to rise across most of the country, the house price caps have been rendered virtually useless. In a recent government housing package announcement, caps were lifted “to assist more New Zealanders to purchase their first home”. Unfortunately, even the new price limits have become all but pointless in many cases. For example:

• $625,000 in Auckland.
• $550,000 across most of the Wellington region.
• $500,000 across most of Christchurch and the surrounding area.
• $400,000 in places such as Palmerston North, which falls under the “rest of NZ” category. Noting that even in a regional location such as Palmerston North the middle/median price is around $674,000!

This means that in many cases, buyers in the locations above are pushed to properties on the city fringe if they can buy anywhere at all. Data from QV revealed that the lower quartile price is still higher than many regional caps. For example, in Auckland the bottom quartile prices are higher than the cap everywhere but in Franklin District, well South of Auckland City itself.

Note: Above is just a summary of the price caps for existing homes, for more information on the price caps for other regions, new properties, and overall eligibility you can get in touch with us, or see the relevant Kainga Ora webpage.

Do-ups don’t qualify either – any house with a building report showing more than $5,000 of remedial work needed is in most cases ineligible. In most regions and cities, except for Christchurch at a push, this all combines to make the First Home Loan nearly unworkable.

In cities where apartments tend to be a big part of the more affordable end of the housing market, there’s another problem. Generally speaking, Kainga Ora is even more risk averse than the mainstream banks when it comes to lending on apartments. i.e. size, location, title, building itself, etc.

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It’s not all gloom for first home buyers

Despite the ridiculous eligibility criteria for many regions, it’s not all bad news for first home buyers. Several things are working in favour of first home buyers:

• House prices seem stable in most parts of the country as investors take a breather in the wake of recently announced tax changes. Many commentators only expect this to last a few months though.
• Many short-term mortgage rates have inched lower. Once again, they’re at historical lows so it might be a little easier to make mortgage payments. However, they won’t stay this way, so plan ahead.
• Banks are still looking favourably at those with stable employment in sectors of the economy (including government employees) that have ridden through Covid-related disruption.
• Our experienced mortgage advisers (mortgage brokers) assist first home buyers every day, and routinely explore many channels to help people into their first home.

The bottom line – tough eligibility for First Home Loan

While the intentions of the scheme are good, most people are missing out on the First Home Loan because the eligibility criteria is so restrictive. Even recent changes are failing to keep pace with the market. If you’re a first home buyer, you can learn more in a chat with our lending team: so get in touch for a free, no-obligation, chat.‍