First home buying: Part one
My partner and I bought our first home in 2021, so I am familiar with how overwhelming and stressful the process can be. Getting into your first home is a huge life achievement, and here at BetterSaver we want to support people achieve the things they set their sights on - like home ownership! The good news is that with recent changes, it may make things a bit easier for first-home buyers.
Here’s an update on what has changed this year and how it can help you buy your first home.
First Home Loans ditch price caps
First Home Loans are underwritten by Kāinga Ora, allowing first home buyers to access loans with a deposit as low as 5%. The 5% deposit can come from savings, gifts, grants, and/or your KiwiSaver fund if you are eligible for a first-home withdrawal.
Until recently, to qualify for a First Home Loan, the property had to fall under a price cap. Previous price caps meant it was hard for those living in places like Auckland and Wellington to find a home that fit the criteria. For instance, the price cap on an existing home in Auckland was $600,000 in February 2021, when the median house price was $1.1 million. Not super helpful.
Now that the price caps are gone, those who meet eligibility requirements for a First Home Loan have a bigger price range to work with. More houses on your list of options means a better opportunity to get the home you really want. The removal of house price caps for First Home Loans is expected to allow 2,500 more loans to be funded annually, helping thousands more purchase their first home.
While you don’t have to be a KiwiSaver member to apply for a First Home Loan, it can help you raise the required deposit. Being a contributing member in the right KiwiSaver fund is the key.
Price caps for First Home Grant have been raised
The price caps for First Home Grants have been raised (not removed entirely, like for First Home Loans).
A First Home Grant provides up to $10,000 for your first home deposit and is money you don’t have to pay back. Because the grant can now apply to more homes, more options are available for first-home buyers who need help with their deposit. The First Home Grant price caps are location-specific and based on lower quartile estimated property values. For instance, the price cap in Auckland is $875,000, while in Taupō District it is $575,000.
You could be eligible for a First Home Grant if you have made the minimum 3% contribution to your KiwiSaver fund for at least three years and meet other criteria for income, deposit amount, and the property. This is one reason why sorting your KiwiSaver now is crucial for first-home buyers.
The First Home Partner program is growing
If your deposit and home loan aren’t enough for your first home, the First Home Partner program might be for you. It is a shared ownership plan with Kāinga Ora where they contribute toward the purchase of the home and share the title with you. It is expected that you will purchase their shares back within the first 15 years of ownership.
The program started in October 2021 with Westpac and BNZ. Recently, SBS Bank has become a participating lender. More banks mean more opportunities for first-home buyers.
Here’s what you need to do:
Meet eligibility requirements - these include being a first home buyer, having a total household income of no more than $130,000, and committing to live in the home for at least three years
Contribute at least 5% towards the deposit (this can be from your KiwiSaver first-home withdrawal and/or First Home Grant)
Meet bank lending criteria for a home loan
Kāinga Ora contributes a maximum of 25% or $200,000, whichever is lower. You will have to meet annually to review your finances and keep on track to full home ownership. And if you want to renovate or sell your home, you must consult them first.
Check Kāinga Ora’s website for the full details and to submit an application.
Responsible lending rules are making it easier for borrowers
While earlier this year NZ saw stricter lending criteria where people were denied loans because of money spent on pets or takeaways, these rules were relaxed in July. The government is promising to further loosen up lending regulations to make it easier for Kiwis to access home loans with changes that will take effect in March 2023.
These rules come about through changes to the CCCFA - Credit Contracts and Consumer Finance Act. The act is meant to protect consumers from predatory lenders by ensuring that businesses that lend money act responsibly. Basically, the lender must verify that the borrower can afford to take on the loan.
Changing CCCFA rules means Kiwis will be more likely to qualify for a loan, while still ensuring lenders stick to responsible lending rules. This creates confidence for both the borrower and the lender that the loan will be paid back, potentially putting home ownership in reach for more people.
You still need to sort your KiwiSaver fund to get the maximum amount
My partner and I were able to buy our first home thanks to our KiwiSaver funds making up most of the deposit. You can read my top three tips for first-home buyers to help avoid some headaches, but more importantly, you should make sure your KiwiSaver is first-home ready.
There have been no changes to the KiwiSaver First Home Withdrawal. If eligible, you can withdraw all except $1,000 of your KiwiSaver fund for your deposit. You must have been a contributing member for three years, intend on living in the home, and this must be your first time owning property. To learn more about how the First Home Withdrawal works, read our blog on using KiwiSaver for your first home.
Sorting your KiwiSaver as soon as possible can make a big difference. The more time you have to earn returns and compound interest, the more you will likely have for a deposit for your first home. Use BetterSaver’s KiwiSaver calculator to find out how much you could save and our Borrow Power calculator to estimate how much you could borrow.
BetterSaver makes it easy to sort your KiwiSaver fund. We’ll match you to a fund that aligns with your goals, timeline, and ethics, and if you choose to switch, we’ll do all the work. Take our fund finder quiz today and find a better KiwiSaver fund in less than five minutes - while getting one step closer to your first home.