It’s safe to say that budding first home buyers across New Zealand have been feeling a bit…well…deflated lately.
As you scramble to build that first home deposit while house prices continue to climb, you start to wonder whether your home ownership dream will remain just that: A dream.
You want it so bad, and your sites are firmly set. But it feels out of reach. In fact, if you stand on your tippy toes, you can only juuuuust see it.
But it’s not all doom and gloom.
Yes, the current housing market is a tough one for first home buyers in many respects. Ridiculously high house prices, and hence ridiculously large deposits, being the obvious challenges.
Despite this, there are some silver linings.
While 2020 was one hell of a year for many of us (aspiring first-home buyers included), 2021 has brought with it some good news that might just be the boost you need to finally get on that ladder.
KiwiSaver’s bouncing back
KiwiSaver investments were hit pretty hard overall last year thanks to COVID, but they’re rebounding extremely well. Even better than many expected.
This is important because as a first home buyer, you may be eligible to withdraw your KiwiSaver funds for your first home deposit.
While 2020 wouldn’t have been the smartest time to do this (you would have likely lost money), the markets are looking good for 2021 which means stronger returns for your investments and more money available to withdraw for your deposit.
Of course, there may be more volatility ahead, and nothing is guaranteed when it comes to the markets. But if your KiwiSaver coffers are the difference between reaching your deposit threshold or not, now’s looking like a good time to go for it.
What’s the key eligibility criteria?
- You must be a first time home buyer to withdraw your KiwiSaver funds.
- You must intend to live in the property (it can’t be an investment property).
- You must have been in KiwiSaver for at least 3 years before you withdraw funds.
- You can withdraw:
- Your contributions
- Your employer’s contributions
- The government’s contributions
- Interest you’ve earned
- Fee subsidies (if you got these)
- You must leave $1,000 in your account.
KiwiSaver withdrawals are done through your KiwiSaver provider, so contact them to apply.
First home government grants
The government announced a bunch of changes in March designed to make it easier for first-home buyers to get into the market.
One of these changes was increasing the house price caps under the KiwiSaver First Home Grants scheme.
This scheme allows first home buyers to apply for a lump-sum grant from the government of up to $5,000 for existing properties, or $10,000 for new homes. But it only applies to properties worth under a certain value.
The new house price caps vary depending on the region. Auckland, for example, is now 625k for existing properties (up from 600k), and Wellington is 550k (up from 500k). You can see the full list of caps here.
How does First Homes Grants work?
If you’re a first time home buyer, or a previous homeowner and you’ve been making regular KiwiSaver contributions for 3 – 5 years, you may be eligible.
The amount you get depends on how many years you’ve paid into the scheme.
You can apply for either pre-approval before you start your property search, or a grant approval once you’ve signed a sale and purchase agreement.
If you’re buying with someone else, you can combine your grants.
You can apply for the grant through Kāinga Ora – Homes and Communities.
Low deposit home loans
Another recent change the government made was to increase the income caps for the First Home Loan scheme.
This is a government initiative where borrowers can apply for a home loan with just 5% deposit, if you meet certain criteria, including earning under $95k per year (for one person – up from 85k) or under $150k (for two buying together - up from 130k).
These loans are issued by selected banks and other lenders (underwritten by Kāinga Ora). This allows lenders to provide loans that would otherwise sit outside their lending standards.
You can check if you’re eligibility here.
What if I’m not eligible?
Unless you’re eligible for the First Home Loan scheme, most lenders would like to see a minimum 20% deposit. But not all - and we can assist with that.
There are now some options for lower deposits home loans (particularly if you’re building a new home, for example).
The Reserve Bank of New Zealand recently amended restrictions to LVRs (loan-to-value ratios) which now allows for 20% of new mortgage lending to owner-occupiers to be given to borrowers with 20% deposit or less.
So, if getting to that 20% mark isn’t an option for you, there’s a chance lenders will loan you more than 80%, helping you get into your first home sooner. But your application will have to undergo a few assessments to see if you’re eligible (and if you are, low equity interest rate premiums may apply).
It’s always important to keep in mind that the lower your deposit, the more you’ll pay back in interest over the long term. So make sure you do you do the math and figure out if it’s affordable before you jump in.
Other government changes
There are a few other changes in motion that are designed to help first-home buyers into the market.
These include the likes of boosting supply by paying for infrastructure required to make more land ready to build on, asking councils to free up land for housing developments. As well as cracking down on people owning more than one property to free up supply for first-home buyers.
We’ll have to wait and see how these changes affect the market for first-home buyers, but we’re taking steps in the right direction, and at least there is some good news for first-home buyers in the short-term, while we wait for those results.
Need a hand?
It can be daunting getting your head around everything that’s involved in securing a mortgage.
As a financial adviser and mortgage broker, it’s my job to make the process easier on you.
If you need some help (and some peace of mind), get in touch and let’s get you sorted.
The Finance Marshall
0508 543 627