Hope And Help For First Home Buyers

A Wizard Home Loans report says housing was more affordable in May than a year ago – for the first time in five years. And it expects interest rates and house prices to fall through the rest of 2008.

Let’s not get carried away here. A 25-29-year-old on the median income for that age group still needs to spend 70.6 per cent of take-home pay to cover the mortgage on a house priced in the bottom 25 per cent, says the report. That’s down from 73.4 per cent a year ago, but it’s still horribly high. But a couple, both on that income, might manage 35 per cent each.

And the government is offering the following help to first home buyers – or in some cases non-homeowners in a similar financial situation to first home buyers - provided they live in the house:

• A two-year pilot shared equity scheme, starting July 1. This will give 500 to 700 people interest-free loans of 5 to 30 per cent of the value of an inexpensive house – with price caps varying by region.

When you sell the house, or the loan expires, the government will get its money back plus 5 to 30 per cent of any gain in house value – or minus 5 to 30 per cent of any loss.

Participants who must buy in Auckland, Wellington, Nelson, Christchurch or Queenstown; pay a deposit of at least 5 per cent, and have household income under $85,000 a year.

Experts worry the scheme will push up prices for other first home buyers, and that landlords will exploit it. But it’s great for participants, who might get interest-free loans of more than $100,000 in some cases. For more information see www.hnzc.co.nz or ring 0800 804 692.

• Welcome Home Loans, for people who can afford mortgage payments but don’t have a deposit. The government provides mortgage insurance to help you borrow up to $200,000 with no deposit, or $280,000 with a small deposit. This is clearly for areas where house prices are lower.

Household income limits are $85,000, or $120,000 for three or more. More information: www.welcomehomeloan.co.nz.

• KiwiSaver. The government will contribute $3,000 towards your first home after you have been contributing around 4 per cent of your pay to KiwiSaver for three years, rising to $5,000 after five years. A couple can get $6,000 to $10,000.

The government originally said household income had to be less than $100,000, or $140,000 for three or more. It now says the income cap will be reviewed before mid-2010. House price caps will probably be announced in 2009.

Note, too, that people on any income can withdraw some KiwiSaver money after three years to buy a first home. They can take out their own contributions, any employer contributions and all the interest or other returns. More information: www.kiwisaver.govt.nz

Clearly there are different timetables for the three programs. If you want a shared equity loan, you’d better move fast, but there’s no rush on Welcome Home Loans, and KiwiSaver assistance doesn’t start until you’ve been in the scheme for three years. Arguably it’s better to wait a bit before buying anyway, as house prices seem to be headed downwards.

However, the shared equity scheme is such a good deal that eligible people would be silly not to try for it, perhaps also joining KiwiSaver as a backup.