It’s no secret that hard working Kiwis looking to get into their First Home have been faced with some pretty big hoops to jump through. Just getting to the point in their journey of getting an approval for lending has left more than a few people feeling like home ownership is a distant dream that may never come true. I can’t blame them either, with changes to loan to valuation ratio restrictions (LVR) and also the changes to the CCCFA, you can understand how they could feel like the goal posts are forever shifting further and further away. Then you have the growth in house prices we’ve seen over the last few years, meaning that deposit you’ve been working and saving towards maybe hasn’t been growing fast enough to keep up with the growth in house prices, which can see you stuck at pretty much the same LVR percentage and home ownership staying just outside of your reach. Not only does this affect your deposit percentage but it meant finding a house for sale under the price caps required to qualify for the First Home Loan and First Home Grant got more and more difficult and often, if you found one, you would struggle to get the lender to accept the property as security because it was often what you could call “a bit of a fixer upper”. But some of the recent announcements from the government have changed the game significantly for first home buyers, which is a welcome relief and some of the changes are looooong overdue.
With a First Home Loan you can buy your first home with as little as a 5% deposit down instead of needing a 20% deposit, meaning that first home buyers can get into a home of their own sooner. Kainga Ora (Housing New Zealand) underwrite the loan, which allows the lender to provide loans that would otherwise not meet their lending criteria due to LVR restrictions.
The main change to the First Home Loan is a biggy, it’s long overdue and one that I personally have seen stop more first home buyers in their tracks than anything else. I’m talking about the purchase price caps for a house you might be looking at buying. These price caps affect whether a property purchase qualifies for the First Home Loan and also the First Home Grant. The price caps are different for each region and had remained unchanged for a very very long time, like almost 10 years, and we all know how the property market has changed in that time. In the past, the price caps have essentially made the First Home Loan a nice fluffy idea that never really gets off the ground because, as I mentioned above, finding a house that qualifies is difficult at best. But the price caps are no longer an issue because they don’t apply to First Home Loans anymore. If you can provide at least a 5% deposit, can show you can meet the lending servicing requirements and meet the other simple criteria for the First Home Loan you can look at houses that are for sale in todays market and that are quite readily available. It’s a real game changer.
For example, if you’re a first home buyer (or in a similar position) and have say $40,000 that you can use as a deposit towards a house and you meet the other criteria for the First Home Loan, you may now be able to look at purchasing a house for $800,000. This is definitely doable in todays market. To do this with a 20% deposit would mean you’d need to have $160,000 to use as deposit. As an example, previous to the government’s recent announcements, if you were looking to buy in or around Matamata or Morrinsville, you would have needed to find a home that was either less than $400,000 for an existing property or less than $500,000 for a new build to have it qualify for the First Home Loan. Ask anyone that has been actively searching for a house within the price caps previously and they will likely tell you how difficult it was and believe me when I say we have seen our fair share of people who would otherwise qualify and would be living in a home of their own under these new changes, but were unable to find a house that was within the price caps when they were looking previously.
If you or someone you know would like to find out more about working through a First Home Loan application please get in touch with us, these changes will allow thousands of people each year to go from renting to first home ownership so much faster and we all know what a life changing experience that can be.