We all knew it couldn’t last forever. Interest rates have started to rise, with rates tables breaking out a rash of red arrows, especially for the longer terms. Floating rates are also starting to nudge upwards, despite the incredibly low 1.75% official cash rate.
Despite this we’ve been busier than ever particularly enquiries from First Home Buyers – which is sooo good to see!!
First Home Buyers now is your time!
The effects of the 40% deposit rule set in place by the Reserve Bank are well have truly taking effect in November. House prices are more stable, auction clearance rates are decreasing (less homes are selling at Auction time) and the average time a property is spent on the market is increasing to around 40 days instead of just 25 days like we were seeing in the middle of the year.
Unfortunately the Reserve Bank still requires banks to have no more than 10% of their loans on their books to be over 80% LVR. Banks face hash penalties for breaching this so in reality they are more likely hovering around the 5.0% mark.
I said Unfortunately as this is a broad tool affecting everyone. This means even if you are a first home buyer 95 times out of 100 you are still expected to come up with a 20% Deposit!!
In this month’s post we’ll discuss ‘Welcome Home Loans’ (WHL) as a very viable alternative for many First Home Buyers (FHB) who simply can’t save an eye watering 20% Deposit.
What is the Welcome Home Loan scheme?
It is NZ government (Housing New Zealand) backed scheme aimed at helping Kiwi’s who struggle to save for a deposit to get on to the property ladder. WHL’s are exempt from the Reserve bank LVR rules as they are propped up or ‘Underwritten’ by Housing NZ. Although limited it’s incredibly useful as an entry point for a large portion of young Kiwis.
What are the requirements?
- House Price cap (Auckland) of $600k or $650k if it’s a new build. A ‘new build’ means it’s never been lived in and the Code of Compliance has been issued within the last 6 Months.
- $85k income cap as an individual borrower Or $130k combined household income cap as joint borrowers
- Minimum 10% deposit
- Must intend to live in the home you are buying for at least 6 Months following settlement.
- Must pay a 1.0% Lenders fee (Lenders Mortgage Insurance). Most often this can be added onto the loan.
- Must not be an apartment. This is unofficial it isn’t on the Housing New Zealand website however experience tells me banks certainly won’t lend on anything smaller than 70 sqm’s at this LVR range. At the end of the day Welcome Home Loans are still subject to individual bank criteria.
At first glance these may appear to be very restrictive and fairly useless for a lot of FHB’s.
Yes realistically $600k would only buy you a 3 Bdrm home in parts of South or West Auckland and you’d fail to even find a 2 Bdrm Unit for that price in the central & eastern suburbs!
This may be true in many instances, however a lot and I mean a lot of young Kiwi’s do qualify and personally I have helped dozens in to their first homes through the Welcome Home Loan scheme, where by their own admission they wouldn’t have had a chance at home ownership otherwise!
So I appreciate this doesn’t work for all FHB’s just like using Family Equity isn’t an option for everyone either. It’s simply another tool in a good Mortgage Brokers toolbox
Let’s talk numbers.
Here is an example of some clients of mine (names changed) who recently bought for $500k in Papakura / Takanini using just $40k of their own money!
John & Mary are a young ambitious couple both aged 27. Neither came from a ‘well off family’. John is a Graphic Designer and works in Ellerslie and is on $60k p.a. Mary is a social worker in South Auckland and is on $50k p.a. They don’t have any savings in the bank beside their Kiwisaver (K.S).
Even though they were previously renting much more central they chose Papakura as it was close to the train station and saw it as an up and coming suburb. Besides this they just really wanted to get onto the property ladder!
They both had been in Kiwisaver for 5+ Yrs and had $23k & 17k respectively in their accounts. Because they had both been regularly contributing for the last 5 years they were eligible to receive $5k each under the ‘Homestart Grant’.
This is the ‘free money’ from Housing NZ so to speak, don’t confuse this as the ability to withdraw your own money from your Kiwisaver to purchase a First Home. Anyone can do this.
- Purchase price: $500k
- Deposit: $50k ($40k Kiwisaver, $10k Homestart Grant)
- Mortgage (Welcome Home Loan) $450k
- Weekly Mortgage repayments $525 p.w.
So by leveraging off my expertise and taking advantage (and being aware) of all the possible options available to them John & Mary are extremely proud FHB’s!
They are looking at building equity through this purchase and of course paying down as much debt as possible over the next 3-4 years before they start a family. They see this as a stepping stone to bigger and better things.