Mortgage aid plan 'could lift prices'

Efforts to help first-home buyers climb on to the housing ladder will backfire and push house prices up rather than help people who are struggling, according to real estate experts.

Tony Alexander, BNZ chief economist, said the Government's extension of its Welcome Home loan scheme deposit from $150,000 to $200,000 would simply drive up prices.

Equity sharing schemes where financiers own a portion of a house would have the same effect, he predicted. Banks were not in the property-owning business and should stay focused on funding rather than investing directly, Mr Alexander said.

House prices were still rising, he said, and would probably continue to do so.

Hugh Pavletich, who wrote the Demographia survey of housing affordability with Wendell Cox of the United States, also criticised the Government's extension and new funding mechanisms such as 50-year mortgages.

Equity funding schemes were particularly worrying, he said, because many home owners suffered when they entered these ventures in the 1980s and 1990s.

"There are numerous personal horror stories of these schemes," he said, and they were no help to people struggling to get a deposit together or pay off a mortgage.

Nor would extending the Welcome Home loan package help, Mr Pavletich said.

"It needs to be borne in mind that all these esoteric financing schemes are counter-productive bandaids to strangled urban markets," he said.

"Shared equity, 50-year mortgages and taxpayer cash handouts only add fuel to the fire, that will drive prices still higher and worsen the problem."

The answer was to free up more urban land for development which would solve affordability issues, he said.

Housing Minister Chris Carter said the extension would be a shot in the arm for first home buyers.

Those with no deposit could borrow up to $200,000 and up to $280,000 if they had a deposit.

The Government was also considering a shared equity scheme along the same lines as those in Britain where the Government or private partners provided part of the equity - often around 30 per cent - for a deposit that was repaid when the house increased in value or was sold, Mr Carter said.

Real Estate Institute president Howard Morley backed the Welcome Home extension, saying any initiatives to help people into housing were laudable. But he had reservations about shared equity, predicting banks would reject the schemes because they would be difficult to administer.

BNZ and ANZ both said yesterday they did not offer shared equity schemes and Mr Morley predicted that if the Government wanted to initiate this, it would have to run the scheme via Kiwibank.

Westpac yesterday released a list of 50-year mortgage pros and cons, concluding they were a bit like painkillers: great as long as you don't become addicted.

"The sting in the tail is much higher interest payments over the term of the mortgage," Westpac said, adding that interest-only loans were another way to ease repayment issues.

But a 50-year mortgage was unlikely to run to term because, on average, New Zealanders sold their homes once every 17 years and the average life of a mortgage was only seven to eight years, Westpac said.

Investors might like the longer-term loans, but others should consider them a "stop-gap measure", the bank said.

Leasehold residential deals are becoming increasingly popular, particularly around the Viaduct Basin. Kitchener Group has also sold Queen St apartments but kept the land which it then on-sold and Albany residential property is being sold with only title to the buildings, not the land.

The latest mortgage interest rate survey released yesterday by Blue Chip Financial Solutions showed average mortgage costs rose from $858.35 in July to $863.40 this month. This is the average repayment due on a 20-year mortgage, based on latest interest rates charged by the five main trading banks.

Tasman Mortgages is charging the lowest rate at 8.6 per cent but most of the trading banks are charging 9.55, the survey found.

Richard Croon, managing director of Sentinel, which offers home equity release schemes aimed at retired people, said that in the last two years his firm had approved loans worth $130 million on 3000 houses.

Ways to make houses easier to buy:

* The Government has announced a $4.9 million annual increase to Welcome Home funding.

* Shared equity schemes are being investigated whereby financiers own up to a third of a house.

* Extending mortgages to 50-year terms spreads the burden of payments, another option for first-home owners.

* Leasehold deals are becoming increasingly common, making housing more affordable but depriving homeowners of land.

SHARING EQUITY TO HELP HOUSE BUYERS

This system allows a house buyer to borrow less, by signing a portion of the property over to a private partner such as a lender.

Housing Minister Chris Carter is impressed by the system, which is common in Britain. A lender might take a one-third stake in the house, leaving the first-home buyer to own the rest of the property and reducing mortgage repayments. If the house is sold, the Government or private entity which provided part of the deposit is repaid.

Falling home ownership trends are causing political fallout, so Mr Carter is examining ways to help, particularly in the heated Auckland market.

Under shared equity schemes, a home-owner could use the capital gain from the first home as an increased deposit on a second home, which Mr Carter said could help people in expensive areas to get into housing.

But BNZ chief economist Tony Alexander said the schemes were rife with problems, such as restricting homeowners' rights and potentially causing fights over maintenance, expenditure and upkeep.

Real Estate Institute president Howard Morley said the schemes could lead to valuation and administration disputes.