It currently costs 10 times the NZ median income to buy a median home in Auckland. At that cost, it’s no wonder that New Zealand is experiencing its lowest rate of home ownership in almost 70 years, with just 64% of Kiwis owning their home.
Low interest rates make it easy for investors to snap up houses right away, competing with each other on price and leaving first home buyers out of luck - especially so in the wake of Covid-19.
But yesterday, we saw some significant changes.
The NZ government issued a press release on 23 March outlining changes to the government’s housing policy, including direct changes to the First Home Grants and Loans - which mean you might be eligible for money towards your first home if you weren’t before.
How does it affect you? We’ll break it down.
More Houses, More Hope for First Home Buyers
The government’s new housing package promises incentives for more housing, less lucrative terms for investors, and increases to both income caps and house pricing caps for first home buyers’ grants.
A huge part of the housing problem is there is not enough supply to meet demand. With the introduction of the new package, $3.8 billion has been committed to building more houses to alleviate the supply problem.
The Housing Acceleration Fund is expected to see tens of thousands of new homes built, reducing the pressure on the market and giving first home buyers a little room to breathe - hopefully causing a reduction in some of the queuing for open homes and desperate rushing to the lawyers and banks to get an offer in before it’s gone.
To ensure there are enough trades staff to build the homes, the Apprenticeship Boost initiative has been extended by four months. The Boost encourages employers to keep current apprentices and continue to take on new ones by providing payment to employers for the apprentice’s first two years of training.
Less competition from property investors
Measures are being put in place to make it less lucrative for investors to snap up residential properties.
The “bright-line test” - where people pay marginal taxes on capital gains from the sale of a house - is being raised from 5 years to 10 years. This makes it more profitable to keep a house for a minimum of 10 years in order to pay less tax when it’s sold.
The intention is to reduce the number of investors buying and selling quickly for a profit - if fewer investors are interested, it eases the competition for first home buyers to get on the property ladder. However to encourage investment in the development of new housing, the bright-line for new builds remains at five years.
The government is also removing a tax advantage for property investors, where previously they have been able to offset their interest expenses against rental income, and considering closing an interest deductibility loophole.
More availability of funds
Now to the part that directly affects first home buyers. The new housing policy gives more support to first home buyers in two ways: by raising income and house price caps, making more people and homes eligible for the First Home Grant and First Home Loan.
If you are eligible for the KiwiSaver First Home Grant, you can get up to $10,000 (or $20,000 for a couple) towards your home deposit - that’s money you don’t have to pay back. The eligible income cap has been raised to $95,000 for individual buyers and $150,000 for two or more buyers. Raising the income caps means more people are eligible to get the grant towards their first home - approximately 9300 couples and 3700 singles who are currently renting will now qualify.
To be eligible for the grant, the home you purchase has to be under the house pricing cap, which varies from region to region. Some of these caps have been increased, reflecting the rise in house prices, to allow for a greater number of houses to qualify:
- In Auckland, the cap for a new build is now $700,000, up from $650,000. And for existing homes it is $625,000, up from $600,000.
- In the Wellington region, the caps are now $650,000 for a new build and $550,000 for an existing property.
- In Nelson, Tauranga, Tasman, western Bay of Plenty and Hamilton, the caps are $600k and $525k, respectively, and in Waikato, $600k and $425k.
These new caps for income and house pricing also apply to Kāinga Ora’s First Home Loans. These loans are underwritten by Kāinga Ora so that your bank can issue a loan with a deposit as small as 5% of the purchase price.
There are further requirements for eligibility for the First Home Grant and Loan which remain unchanged.
As Always, Ask for Advice
It’s exciting to see changes that might start to make it easier for more people to purchase their first home. There is a lot to be aware of in the home buying process and we want to make it as easy as possible.
BetterSaver is here to guide you to set up your KiwiSaver investment to get you on track to home ownership. We’ll make sure you are in the right fund for you, advise you on when you can withdraw and how much. We’ll help determine if you are eligible for First Home Grants and Loans and point you in the right direction to apply. And while we’re at it, we can make sure you’re not inadvertently investing your KiwiSaver in nuclear weapons.
Once you’ve got your deposit and have applied for eligible help, we recommend talking to a mortgage broker. Their expert advice can help you navigate the borrowing process and sometimes get you more competitive rates than you would get on your own.