Those first home buyers wishing to purchase their home utilising the First Home Loan scheme must occupy the home themselves; the First Home Loan may not be used to purchase investment or rental properties.
Over the past few years, the government has proactively introduced a series of financial packages to assist and incentivise first home buyers to purchase a first home. The social and economic advantages of home ownership to families and the communities in which they live has been well documented. Better health outcomes, improved educational outcomes, social cohesion, and increased community participation are among the many benefits to families associated with the stability and security inherent of home ownership. In the 1950’s, New Zealand had one of the highest per capita home ownership rates in the world. In recent times, however, increased house prices and a generation of families trapped in the rental cycle have adversely altered those statistics. In an effort to reverse the decline in home ownership, the government has introduced the First Home Loans, KiwiSaver First Home Grant and the KiwiSaver first-home withdrawal as well as the First Home Partner and KiwiBuild schemes.
These various financial assistance packages, and the relevant criteria can seem daunting to a first home buyer, so this blog will outline the eligibility criteria so you have a direction to follow.
The First Home Loan scheme is underwritten by Kāinga Ora – Homes and Communities and issued by selected banks and and other lending institutions. This partnership enables lenders to provide loans in circumstances that would otherwise fall outside their lending criteria. While most main lenders require a 20% deposit, under the First Home Loan scheme, lenders such as ASB, Westpac and Kiwibank require a much lower deposit of 5% of the purchase price. To be eligible, borrowers must not exceed the income caps set by the government. In July 2022, the annual income threshold for one borrower increased to $95,000 before tax, while for two or more borrowers the income cap rose to $150,000 before tax annually. The thresholds are reviewed every 6 to 12 months so it pays to check before you apply.
In recent years, First Home Loan applicants also had to adhere to a price cap for the house they wished to purchase. While these price caps have been removed for the First Home Loan scheme in 2022, they remain in place for another governmental support scheme, the First Home Grant.
Those first homebuyers wishing to purchase their home utilising the First Home Loan scheme must occupy the home themselves; the First Home Loan may not be used to purchase investment or rental properties. You must also be a New Zealand citizen or permanent resident, must not own any other property, and must pay a lenders mortgage insurance premium and relevant lending application fees, which can be built into the mortgage.
The second component of the government financial assistance which is available to first home buyers relates to your KiwiSaver membership. There are two funding streams available to first homebuyers who have contributed to KiwiSaver for a minimum of three years; these are the KiwiSaver First Home Grant, and the KiwiSaver first-home withdrawal. Both grants can be made in respect of the same property, but have different eligibility criteria as outlined below.
If you buy an existing home, the First Home Grant can provide a maximum of $5000 for one buyer, or $10,000 for two or more buyers, towards the deposit. The scheme can also provide up to $10,000 for one buyer, or $20,000 for two or more buyers, towards the deposit for purchasing a new property or a newly-built home.
In order to be eligible to receive the KiwiSaver First Home Grant, you must have been making regular contributions to your KiwiSaver account of at least the minimum allowable percentage of your total income. After a total of 3 years of qualifying contributions, you would be entitled to receive $3000 towards an existing property, $4000 after four years of appropriate contributions, and a maximum of $5000 after 5 years of qualifying contributions. If you are purchasing a new house or property and you have met the specified contributions criteria, the First Home Grant doubles so that it becomes $6000 after 3 years of contributions, $8,000 after 4 years of contributions, and a maximum of $10,000 after five years of contributions.
For the First Home Grant, the same income caps apply as for the First Home Loan scheme, meaning your annual household income before tax cannot exceed $95,000 for a single buyer or $150,000 for 2 or more buyers. Furthermore, you can only use the First Home Grant for properties with a purchase price within the designated house price cap for your region. These are being reviewed every six months, so it pays to check in regularly before you decide to apply.
In July 2022, the price cap for existing properties ranged from $400,000 in areas such as the Far North, South Waikato and Invercargill to $875,000 in areas including Auckland, Thames-Coromandel and Queenstown-Lakes. At the same time, price caps for new properties and new builds ranged from $500,000 in the majority of districts to $925,000 in urban Wellington, Thames-Coromandel and Queenstown-Lakes.
The First Home Grant cannot be paid once settlement has occurred.
You must intend to live in the home for a minimum of six months after the settlement date to qualify to receive the KiwiSaver grant.
The KiwiSaver first-home withdrawal is a third form of financial assistance which enables you to withdraw all of the previous contributions which have been made to your KiwiSaver, including your own contributions, employer contributions and government tax credit contributions, except the initial $1,000 deposit. Both, the First Home Grant and first-home withdrawal, can form your deposit, which means that if you have contributed regularly to KiwiSaver for 3, 4, or 5 years, thus attracting the relevant government tax credit and employer contributions, you may already have accumulated quite a substantial amount which can be used as all or part of your deposit. Depending on how much you have saved in your KiwiSaver, this may enable you to meet the 5% deposit threshold required to get a First Home Loan.
While you are looking for your ideal first home, you can apply to Kāinga Ora for a KiwiSaver First Home Grant pre-approval which is valid for six months, and will also assist you when you apply to main lenders for pre-approved finance.
The first-home withdrawal is administered by your KiwiSaver provider, so you will need to apply to the relevant provider for your savings withdrawal.
Once you have your KiwiSaver First Home Grant pre-approval from Kāinga Ora, and you have confirmation of the amount you can withdraw in relation to the KiwiSaver first-home withdrawal, these amounts combine to form part, or all of your deposit. You can then approach a First Home Loan provider and apply for a First Home Loan. You will still have to meet all of the lenders standard lending criteria including an assessment of your particular circumstances, such as your financial ability to repay the loan, your credit history, your level of debt and the manner in which you have conducted your bank accounts in the past.
If you are still not in the position to purchase a house with your deposit and home loan, you may be eligible for another financial support scheme called First Home Partner. In this case, you can buy a property together with Kāinga Ora under a shared ownership scheme. While you will be the main home owner and occupier, Kāinga Ora will own a share in your home until you have paid it off. The maximum contribution made by Kāinga Ora will be 25% of the purchase price or $200,000, whichever is lower. You will still need to meet all other lending criteria and be able to contribute at least a 5% deposit. You also need to agree to use the home as your primary place of residence for at least 3 years after the settlement.
KiwiBuild is another initiative introduced by the government to address current housing issues in New Zealand. Underwritten by Kāinga Ora as well, the programme is designed to deliver 100,000 new homes through planned development of public housing land and building on Crown-owned land that is currently under utilised.
To purchase a KiwiBuild home, everyone on the application must be at least 18 and a New Zealand citizen or permanent resident. The eligibility criteria also includes an annual income cap that depends on the number of people purchasing and their number of dependents. A single buyer without dependents cannot earn more than $120,000 a year before tax, while the income cap for 2 or more buyers is $200,000 regardless of dependents. You also need to agree to make The KiwiBuild your primary place of residence for a specified period of time depending on what kind of property you purchased. The time frame ranges from at least one year for a one-bedroom house to 3 years for a house with 2 or more bedrooms. You can only ever apply for a KiwiBuild once, whether it is a sole or a joint application.
Though the process may at first seem complicated and arduous, you can break it down into several manageable steps and processes, and as you start working through these processes, and get excited about owning and living in your first home, the very attainable goal of home ownership will be in sight, and propel you towards positive action. The government has set up a number of strategies and incentives to help and encourage first home buyers like you, to achieve the very realisable goal of homeownership, and it is very much to your advantage to capitalise on the assistance that is offered, in order to create the stable and secure circumstances on which your family will then be able to depend in years to come.
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