Govt keen on plan for first-home buyers

The Government is considering a scheme to revive long-term fixed-interest mortgages for first-home buyers.

The scheme, promoted by the Tindall Foundation-backed New Zealand Housing Foundation and associated trusts, would provide 10-year mortgages for first homes at fixed rates of around 6 per cent.

David Cole, who chairs the Queenstown Lakes Community Housing Trust and was part of a team commissioned by the foundation last year to develop affordable housing proposals, told a conference in Auckland yesterday that banks could be required as a condition of their licences to put a percentage of their lending into the scheme.

The group also plans to take the idea to major institutional investors, such as the NZ Super Fund, the ACC, the ASB Trust and other regional community trusts.

Housing Minister Phil Heatley was at the conference - organised by the Australasian Housing Institute - and said the group had presented the idea to him and was now working on a more detailed proposal.

"The idea of giving first-home buyers certainty when it comes to interest rates is valuable," he said.

"There has been no formal agreement. We are engaging with them. On the face of it it's a new idea out of left field that looks pretty solid and well thought through."

The Government provided long-term fixed-rate mortgages to first-home buyers through the State Advances Corporation and then the Housing Corporation for almost 100 years until the early 1990s, when lending stopped and existing mortgages were sold to the private sector.

Mr Cole said New Zealand was unusual among developed countries in having no long-term fixed-rate option and a culture of revolving two- or three-year mortgages.

This suited the banks because they passed most of the risk of interest rate changes to home buyers, but it meant new homeowners were liable to be crunched financially if interest rates went up at renewal times.

"A 1 per cent rise in interest rates can easily mean a 4 per cent slug on income," he said.

"We need a fairer mortgage product. We could begin with a 10-year fixed-interest mortgage with the interest locked in the 5 to 6 per cent range.

"After 10 years, 20 per cent of the principal will be paid off and the family will be in a more secure position to take on a regular market mortgage."

Mr Cole said the mortgages could be packaged for investors as mortgage-backed bonds.