National announces relaxed terms for first home buyers using KiwiSaver deposits - but will require 10% deposits on homes and stops short of increasing subsidy

National announces relaxed terms for first home buyers using KiwiSaver deposits - but will require 10% deposits on homes and stops short of increasing subsidy

The Government's announced spending of $64 million over the next four years in an attempt to alleviate the vexed problem of first-time home buyers being potentially locked out of a fast-rising market.

One significant feature of the initiative, however, is that the first time buyers will be expected to have minimum house deposits of 10% - whereas in some circumstances now there is no minimum deposit level. The new proposals come into effect on October 1.

Prime Minister John Key unveiled the package in his speech today to the National Party conference in Nelson. The proposals affect both the use of KiwiSaver funds to buy a house and the existing "Welcome Home" scheme.

Housing Minister Nick Smith, who had previously hinted at the changes, also added further detail.

Speculation

There was some speculation the Government might raise the subsidy available for first time buyers using their KiwiSavers from the existing $5000, but they have not done this.

The changes by the Government come amid clear signs that housing affordability is set to be a big election issue.

The Government had sought to exempt first home buyers from an expected move by the Reserve Bank to put "speed limits" on high loan to value lending. See here for articles on LVRs.

However, in more recent days the Government has seemed to take a more conciliatory, hands-off, approach to the central bank's proposed actions and the move to seal in at least 10% deposits under the new proposals could be seen as the Government somewhat meeting the RBNZ half-way on the moves to cool the housing market, particularly in Auckland.

Key appeared to carry on with this conciliatory tone in his speech in Nelson. 

Pressure

"As the Reserve Bank has repeatedly said, rising house prices affect financial stability and put pressure on interest rates and the exchange rate," he said.

"If a bubble is created and bursts, it could leave many home owners with little or no equity, and leave banks in a vulnerable position."

The RBNZ was "very worried" about this risk, and "precisely that situation" has occurred in other countries, Key said.

"We certainly do not want it to happen here."

Key said homes could be made more affordable in New Zealand by building more houses.

"And building more houses, at reasonable prices, comes down to ensuring that there is more land available to build on, that there are better consenting processes, and that costs are lower.

Affordability

"Addressing this set of issues is far and away the most important thing the Government can do for housing affordability.

"For example, we will have a law passed soon that will speed up the provision of new housing, and streamline approvals in areas where housing is least affordable.

"We already have a housing accord agreed with the leadership of the Auckland Council which will see 39,000 homes consented over three years – a massive increase on what we’ve seen in the past.

"And yesterday we announced a number of significant changes to the Resource Management Act.

"These include making councils plan for a minimum of 10 years of urban land supply, to cope with projected population growth."

On the other hand, Key said, nothing that the Labour Party wanted to do – "along with their bed-fellows the Greens" – addresses any of the fundamental issues behind housing affordability.

The nub of the $64 million proposals from the Government, as explained by Key is thus:

“So the National-led Government will be significantly beefing up and amending KiwiSaver and Welcome Home Loans, at a cost of $64 million over four years.

“We will relax the restrictions around KiwiSaver members accessing the extra deposit assistance of up to $5,000 that is currently available.

“We will do this by increasing the maximum joint earnings of a couple to qualify from $100,000 to $120,000.

“We will also be raising the house price cap under which the extra assistance will be available. In Auckland the cap will rise from $400,000 to $485,000. The cap will also be raised in some other parts of the country with housing affordability problems.

“The Government will also amend the Welcome Home Loans scheme, where the Government underwrites loans for qualifying people, to relax restrictions and make them the same as the new criteria in KiwiSaver.

“We will also expand the scheme to treble the number of loans from about 850 loans a year to 2,500 a year.

“Lastly, to get a first home buyers’ subsidy from KiwiSaver or to get a Welcome Home Loan, people will have to be able to put a 10 per cent deposit together, including what they can access through KiwiSaver.

“At the moment, for example, you can get a Welcome Home Loan having saved a very small deposit, or no deposit, if the house is valued at $200,000 or less.

“International experience shows it’s risky to lend 100 per cent of the value of a first home. So in expanding these schemes, we are assisting these people to put together a deposit, but we are also requiring them to have an initial stake in their asset as well.”

Nick Smith added the following detail:

“We are changing the house price caps and income limits to increase eligibility for the KiwiSaver First Home Deposit Subsidy and Welcome Home Loans. These are expected to double the number of first home buyers receiving the subsidy from 4,700 to 10,000 a year and treble the number of Welcome Home Loans from 845 to 2,500 a year.”

The house price caps for Welcome Home Loans are currently $350,000 in high priced markets like Auckland, Wellington and Christchurch and $280,000 in other regions. For the KiwiSaver First Home Deposit Subsidy they are $400,000 in Auckland, Wellington City, Selwyn and Queenstown Lakes, and $300,000 for other regions.

The new price caps are being aligned for both Welcome Home Loans and the KiwiSaver First Home Buyer Subsidy to $485,000 for Auckland, $425,000 for Wellington City and Queenstown Lakes, $400,000 for Christchurch and Selwyn, $350,000 for Porirua City, Hutt City, Upper Hutt, Kapiti Coast, Tasman/Nelson, Western Bay of Plenty, Hamilton, Tauranga, Waimakariri, Thames Coromandel, and $300,000 for other regions.

The Government is also aligning the income limits of the two schemes. The KiwiSaver First Home Deposit Subsidy is currently limited to $100,000 for one and two buyers and $140,000 for three or more buyers. The Welcome Home Loan income limit is $85,000 for one or two buyers and $120,000 for three or more. The new income limits for both schemes will be $80,000 for a single person and $120,000 for two or more. Most deposit subsidies are for couples and the net effect of the changes is expected to increase eligibility by 11 per cent.

“The house price and income limits are about ensuring taxpayer assistance is targeted at families on modest incomes buying modest homes. The changes are needed to make them realistic and fair,” Dr Smith says.

“We are also changing and aligning the minimum deposit thresholds of the two schemes to 10 per cent. The current Welcome Home Loan minimum deposit threshold is 15 per cent over $200,000 whereas the KiwiSaver First Home Deposit Subsidy has no minimum deposit.

“It is reasonable to expect first home buyers to have saved some funds before getting other taxpayers support to buy a home. The minimum 10 per cent deposit includes any funds from the KiwiSaver First Home Withdrawal and Deposit Subsidy.

“These changes are particularly significant for Auckland where the unrealistic price caps were severely restricting access to the two schemes. The number of Aucklanders’ accessing the First Home Deposit Subsidy is expected to grow from 1,030 to 3,000 per year and Welcome Home Loans from 52 to 867 per year.

“This package of changes to support first home buyers complements the Government’s broader package of reforms underway to tackle the root causes of housing affordability including land supply, infrastructure costs, building material costs, building sector productivity, and compliance costs.”

The changes will take effect on 1 October. The cost of increasing the house price caps and income limits for the KiwiSaver First Home Deposit Subsidy is $46.6 million and $17.3 million for expanding Welcome Home Loans. The total cost of the package is $64 million over four years.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

34 Comments

Comment Filter

Highlight new comments in the last hr(s).

All this proposal will do is instantly push house prices even higher!
The outer suburbs of Auckland that currently have a median price of $400,000 will now rapidly increase to $485,000.
An additional 1,650 buyers to be approved under this new arrangement!

I agree bigblue....  it simply gets capitalized into house prices.
The Govt  must know that....   so it must be a vote buying maneuver ,with the election coming next yr.

I totally disagree with your comment
 
1. The maximum subsidy is $5,000. There are few first home buyers that are $5,000 short of buying a house today that would be able to afford a house on 1 October.
2. There's no bank that would lend $80,000 extra on $5,000 deposit. If the bank wasn't going to lend to you before, a $5,000 deposit isn't going to make a difference to that decision.
3. There's no such thing as a $400,000 house in Auckland. And even if there was, $5,000 more won't push the price up by $85,000.
 
This will increase prices by $5,000 maximum, as it will only impact buyers who are already bank approved; but earning over $100k, or buying a house between $400 and $485k.

Fantastic - now I don't qualify for first home subsidies by a smaller margin!

Any first home buyer household earning an income over $120,000 will need to save a $97,000 deposit for a $485,000 Auckland house, whereas a household earning $119,000 or less could potentially buy the same house with a deposit of $38,500 (plus $10,000 subsidy for two kiwisavers).
This helps a few and frustrates the rest. If the government wanted to make it fair they wouldn't discriminate against first home buyers by income. What a ridiculous policy.

Anyone that thinks there is anything unique about whats going on here should read this: http://uk.reuters.com/article/2013/08/08/uk-britain-housing-idUKBRE97717920130808, replacing the words London and England with Auckland and New Zealand. Speculators would be better served focussing on the words Bubble and Fed.

Oh look, and here's a piece on Bloomberg saying the same thing about the US market: http://www.bloomberg.com/news/2013-08-09/repeat-buyers-drive-u-s-home-sales-needing-to-broaden-economy.html. Is anyone seeing a pattern emerging here - if your first time buyers can't afford to buy, your market is way over valued. The only people who can afford to buy are people who have had their assets re-inflated by loose interest rate policy, and they borrow against their equity for further purchases. Shakes head..they never learn.

This will only serve to prop up the house price bubble as similar measures did in Australia.
They need to deal with the route causes - Too much demand; too little compedative supply.
I interpret this as typical political double talk.  Look we are doing something about it (but actually we are adding fuel to the fire, which actually is  what we are doing every thing we can to encourage), and we are going to do a lot of other good stuff in future (but nothing will happen before the election and after it, all will be forgotten)

Why have bigger caps in Auckland.  It's like giving out bigger Accommodation benefits which happens there too.  In effect it's a targeted subsidy to Auckland, which gets enough subsidy now, and subsidy sends all the wrong economic signals to buyers.

And ends up in the hands of too many foreign landlords. Is anyone ok with that?

Glass is half-full, chaps and chapesses.
 
The floor price for the dodgiest doer-upper or renter in the Greater Metrollops of Awkland is now $485K, by Gubmint Fiat.
 
Every seller, anywhere within the MUL, benefits.  And tax-free, no CGT or clawback, ta very much, because we'd Nevah have sold the Fambly Home otherwise....
 
Pity aboot the Buyers, but....

All of those who were horrified at Labour's distortionary policies, such as interest-free student loans and working for families, had a right to be dismayed.
 
But can you hold your heads up and state that National has been any less corrupt, short-sighted and lacking in sane economic vision? 
 
Any lingering question about this must surely be dispelled this weekend. 
 
Graeme Wheeler and sensible economists must weep.
 
 
 

... yes , enabling more buyers to enter an already crowded market does seem kinda dumb , doesn't it ...
 
So I wasn't terribly surprised when I heard the gumnut had announced these policies ...
 
... prices will be forced up further ...
 
Politicians , huh !!!

The thing that put me off applying for this, is that you have to use a solicitor for the house purhcase, where they take their cut from my kiwisaver funds.
Being self employed I don't qualify for the subsidy, and couldn't afford to pay more than 2% of my income into the scheme. So I wouldn't only ever qualify for the withdrawal of my own funds (no employer contributions), which isn't a great amount. The scheme really suits people who are employed and earning fixed wages.
The changes make no difference to me, apart from pushing up house prices with government subsidies for those people luckily enough to qualify.

Eh?
First of all, solicitors DO NOT take "a cut" from your kiwisaver funds... the extra legal costs involved for both the deposit subsidy & KS withdrawal is the sum total of 2 pages, 2 signatures. Maybe 10 minutes of work for several thousand dollars of gain.
Second of all, you say you were put off applying as they'd grab your KS savings, but in the same breath say you haven't been able to afford to save even 2% of your income?
Never mind the house mate, how the dickens are you going to save for your retirement if 2% breaks the bank?

Even I can see that an equation of not enough houses plus more money in the pot is only going to lead to one thing. I will assume that everyone here is intelligent enough to do that math for themsleves.
Freeing up land may be necessary but, meanwhile, back in the jungle that is the housing market, prices will continue to soar. The jiggery poking with Kiwisaver etc will have been well and truly absorbed in nothing flat, we will be back to the status quo. It will be quite some time before there is land on the market that will make a difference. Maybe that lot owned by a foreigner who stands to gain several hundred percents of profit on, that came to light a month or so back, could be first out of the blocks.
ALL of the reasons why housing is increasingly out of reach for Average Joe need to be addressed, not just a cherry pick of the least controversial.
Get the foreigners out of the market, tax those that are already here, and a capital gains tax on investment properties make good starter suggestions for me. Demand needs to be sorted and frankly kiwis should be first, second, third............ for the available housing.
Call me a xenophobe if you want, I really don't care any more

Thank you for that argument in favour of a capital gains tax Z. How about you go talk to all the people who have been on forums such as this, renting off foreigners who own houses in double figures who pop in once or twice a year. How about you also ask why our properties are being advertised in China etc. It is NOT all migrants, take a drive around a couple of Auckland suburbs and check out the houses with blinds and curtains drawn and weeds up to the windows, no sign of life. Pakuranga and Northcote are a couple of good places to start.

So the REAL PROBLEM is not the race of the investor. It is investors in total.
It is a tax system that allows investors to have a widening advantage over first time buyers.
Solve that problem and the market will sort itself out.

Well I reckon I am damn lucky to be paying tax on my properties.
Somewhere in the bible it says "it is easier for a camel to pass through the eye of a needle than for a rich man to go to heaven" (or 'summit like that ).
So when I pay taxes it stops me from being as rich as I would otherwise be and so I can still get into heaven.
Indeed, God smiles on PIs. See... I told 'ya all... being a PI is doing God's work.
All's good in Landlord land.

Isn't it so nice to know you really do care about your fellow humans?
duh.

BB lll : Mr Landlord didn't make the rules ( did you YL ? .... nah , thought not ) ... he just uses them successfully ...
 
... it's the pollies who you ought to take to task ... they frame up the legislation which we all operate under ....
 
( P.S. the " eye of the needle was quite large " , a small door-way called the " needle " in a fort's wall ... you had to unload your camel , and get it to crawl through the eyelet unladen .... hence to thread the eye of the needle .... even aways back in 2000 b.c. the officials in town-hall were seriously upsetting the merchants needlessly .... needling them .... )

Thank you for that enlightenment Gummy.
Sounds like it won't be as difficult to get to heaven as I thought it would :)
In fact... might be able to keep a bit more of my money.
Perhaps I better start actually 'complaining' about the amount of tax I pay... so...
Hello Basel? ... you there?... PIs already pay too much tax on their housing investments mate!

PIs care as much as you Basel.

OK ....you ARE a xenophobe!!!

Fresh Meat For The Bankers, or First Home Vendors Boost as Steve Keene called the Aussie scheme. Trust the government (any government) to encourage people to buy when prices are high. No government will get re-elected if house prices fall. The swing voters are the only ones that count as the party faithful are not going to switch sides. Who are the swing voters - first home buyers, recent and prospective. They are fresh meat for the bankers.
 
Buy low, sell high. Not buy high and hope.

I stumbled across this Bloomberg story this morning:
When it comes to buying a house, New Zealander Ginny Braun is finding that her home town of Auckland is rapidly catching up to New York City.
“The market feels crazy, it feels like it’s out of control,” said the 40-year-old associate professor of psychology at the University of Auckland, who’s been looking for a house for more than three years. “I’ve heard people say it’s cheaper to buy in New York than in Auckland. Having lived in New York, that doesn’t seem an outrageous claim.”
Prices in New Zealand's largest city have already surpassed four of New York’s five boroughs with an average of NZ$768,664 in July, the equivalent of $617,852. While short of Manhattan levels, prices are rising 13 percent a year. That’s why the central bank is set to join counterparts from Sweden to Canada in limiting mortgages. It wants to damp the booming housing market without raising interest rates and denting the nation’s economic recovery.
http://www.bloomberg.com/news/2013-08-11/auckland-s-new-york-house-price...

When you get down to it, this is the savings policy equivalent of digging for loose change down the back of the sofa to buy the right to take on a higher level of debt.

John Key has stated in an interview that there is no one solution to the rapidly rising house prices in NZ .......
 
... I think that Hugh Pavletich would strongly disagree with that ...
 
It's the supply side of the equation , Mr Key .... it is simple .... redress the imbalance , enable more houses and apartments to be constructed .... but not necessarily all in Bluff ! .....

Indeed.
How about removing GST on new builds? Or even take it down by half?
We've bought a cheap section, have the plans to build.... but the ridiculous price of materials, consents & associated costs means we won't be adding to the NZ housing supply any time soon...

How about recognising that our "lazy fair" economy has lots of effective monopolies that charge as much as they can.  15% GST is nothing compared to the huge markups the building industry is demanding, as you just found out, hence why I maintain my house and not improve it anymore the cost to do so is too high....
Simple, bring in a land tax....if you dont build, well get taxed on the holdings.
regards
 

Historically out of around 1,500 Welcome Home Loans completed each year only 80 to 90 have been in Auckland.
Why because of the zero deposit requirement when buying up to $200,000 purchase price.
It would now appear that Auckland area loans will increase (I don't however think to the extent that the Government think) and Welcome loans throughout the rest of NZ may decline substantially.
It is the first principal of finance. People can't save up to buy but can pay off a loan. With rents being high it still becomes a massive task for young people to accummulate a deposit.
The Welcome deals have 3% LMI (Lenders Mortgage insurance) attached to them. 1% is added to the loan and paid off by the borrower over the term. The other 2% is in the form of a undertaking to HNZ from the Government.
The fallout (loans terminated and properties disposedoff) is audited by actuaries regularly and the claims experience has never exceeded .55 of 1%.
The Governments move has just excluded more younger New Zealanders from home ownership.

-Sorry I realise I may have missed something on the vexed issue facing FH Buyers today & I realise this question maybe slightly off Subject but what is to stop some sort of factoring of a higher Interest Rate on Investment (Secondary) properties?
Would it require some sort of regulatory move?-It could come into effect even on a tier basis ie-on the number of Investment properties owned.
I am not going to go into issues surrounding any beurocracy this may invoke but clearly recall only not too long ago Investment properties incuring highr interest rates & the Commies never took over?
I feel today for FH Buyers in their pursuit as each incentive offered by any Govt is tantamount to being offered a bag of carrots but upon opening the bag find itscontents.....gone.
 
 

Only way to cool this property market is to fix the supply issue.
The RMA and local council regulations around what can be turned into a section or subdivision needs to be thrown out the window. 
Got a 45,000 square metre patch of land on the end of town? Go to town and build 40 houses on it. You can buy these flat bits of land on the edge of Christchurch for under $400,000! Add in say $50k per section for services and some streets and you have just cut $200k out of the average section price in Christchurch.

Not true, introducing a LVR limit will be a big effect, assuming its set low enough to matter. Introducting a land tax to disuade land bankers and a CGT all make property less of an interest to speculators.  All these would have an mmediate effect on prices, unlike adding to supply which takes time.
regards