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 has adversely altered those statistics. In an effort to reverse the decline in home ownership, the government has introduced the Welcome Home Loan, and the KiwiSaver HomeStart and savings withdrawal grants.
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 Welcome Home Loan scheme is underwritten by Housing New Zealand, as a social initiative which enables banks and other lending institutions to provide lending in circumstances which would otherwise fall outside their lending criteria. While most main lenders require a 20% deposit, under the Welcome Home loan scheme, lenders such as ASB, Westpac and Kiwibank only require a 10% deposit. The annual income threshold for one borrower is $85,000 before tax, while for two or more borrowers the income cap increases to $130,000 before tax annually.
Welcome home loan applicants must also adhere to a price cap for the house they wish to purchase. IN Auckland, the price cap is set at $600,000 for existing properties, and $650,000 for new builds. In Hamilton City, Tauranga City, Western Bay of Plenty District, Kapiti Coast District, Porirua City, Upper Hutt City, Hutt City, Wellington City, Tasman District, Nelson City, Waimakariri District, Christchurch City, Selwyn District, and Queenstown Lakes District, the maximum price purchase cap is $500,000 for existing properties, and $550,000 for new builds. In all other regions including Whangarei, the price cap is $400,000 for existing properties and $450,000 for new builds.
Those first homebuyers wishing to purchase their home utilising the Welcome Home facility must occupy the home themselves; the Welcome 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 belonged to, and contributed to KiwiSaver for a minimum of three years; these are the KiwiSaver HomeStart grant, and the KiwiSaver first-home Savings Withdrawal. Both grants can be made in respect of the same property, but have different eligibility criteria as outlined below.
The HomeStart grant can provide a maximum of $5000 for one buyer, or $10,000 for two or more buyers, towards the purchase of an existing home. It can provide $10,000 for one buyer, or $20,000 for two or more buyers, for the purchase of a new property.
The eligibility criteria to receive the KiwiSaver HomeStart grant, is that you must have been making regular contributions to your KiwiSaver account of at least the minimum allowable percentage of your total income. After three 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 a house off the plans, and you have met the specified contributions criteria, the HomeStart 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.
If two or more people are purchasing the property, the maximum amount payable in respect of an existing property is $10,000 for one qualifying applicant, or $20,000 for two or more applicants.
The HomeStart grant cannot be paid once settlement has occurred.
You must intend to live in the home for a minimum of six months after settlement date to qualify to receive the KiwiSaver grant.
The First-Home savings 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 HomeStart and Savings Withdrawal grants 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 how much you have saved in your KiwiSaver, this may enable you to meet the 10% deposit threshold required to get a Welcome Home Loan.
While you are looking for your ideal first home, you can apply to Housing New Zealand for a KiwiSaver HomeStart pre-approval which is valid for six months, and which will also assist you when you apply to main lenders for pre-approved finance.
The Savings 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 HomeStart grant pre-approval from Housing New Zealand, and you have confirmation of the amount you can withdraw in relation to the KiwiSaver Savings Withdrawal, these amounts combine to form part, or all of your deposit. You can then approach a Welcome Home Loan provider and apply for a Welcome 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.
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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