Loan scheme extension to aid first-home buyers

Housing Minister Phil Heatley

Lending limits for "Welcome Home" loans for first home buyers look set to increase next month, opening the scheme up to low-income home-buyers in parts of Auckland and Tauranga for the first time in several years.

Housing Minister Phil Heatley has told Parliament's social services select committee that the current $280,000 loan limit for the scheme could be raised by the Cabinet on August 3 to between $320,000 and $350,000.

The scheme requires a 15 per cent deposit for the amount of any loan that is above $200,000.* In effect, this means the new loan limits would raise the maximum value of houses that could be financed through the scheme from $329,412 to between $376,470 and $411,765, provided the borrowers stump up the required deposits.

The new limit will still be well below the average house price across the Auckland region of $489,444 in the past three months.

But it will give access to the scheme to low-income earners buying homes in the lowest quarter of houses sold in Papakura, Tauranga, Waitakere and Manukau.

Quotable Value said the lowest quarter of houses sold in the last quarter of last year at prices of up to $297,000 in Papakura, $300,000 in Tauranga, $319,000 in Waitakere and $330,000 in Manukau.

Lowest-quarter prices were largely within the existing loan limits in Hamilton ($281,000) and smaller provincial cities, but remain too high even for the new limits in Auckland City ($415,000) and North Shore ($424,000).

Real Estate Institute president Mike Elford said the new limits would be welcomed.

"If you couple that increase with the effect of lower interest rates, it's a huge step up for people," he said.

The loans, available through Kiwibank and six smaller lenders with a Housing NZ guarantee, have provided $719 million to 4482 low-income first home buyers since they were launched in 2003.

But a spokesman for Mr Heatley said that neither the $280,000 loan limit, nor the income limit of $85,000 for a household of one or two people, had changed since the scheme started.

He said there were no plans to change the income limit, but it was clear that the loan limit had fallen behind property values, especially in Auckland.

"Should a new cap be agreed, the rationale for that new cap will be based on what can be serviced within the Welcome Home Loan income cap of $85,000 for one or two borrowers," he said.

"This assumes a household of two adults, one child, no debt, an interest rate of 8 per cent and a 30-year loan term. Applying the same assumptions, the minimum income needed to support the existing $280,000 cap is $68,000.

"As I said, it's likely to be in a range of $320,000 to $350,000, depending on some number crunching and advice from officials.

"The Government is aware of the need to deliver a balance between greater opportunities for home ownership and debt levels that are unsustainably high. If a new cap is agreed it may include caveats to ensure borrowers aren't placed in undue risk of default."

So far only 18 loans have fallen over - almost all due to marriage breakups. Housing NZ has paid out $909,457, or just over 0.1 per cent of the value of the loans.

NZ Housing Foundation director Brian Donnelly said the new loan limit could make the scheme useful in Auckland if it was extended to cover shared equity arrangements where first home buyers buy only 75 or 80 per cent of the value of a home, with the rest owned by a joint owner such as the Housing Foundation.

Welcome Home loans

* Loans up to $280,000 for first home buyers.
* Household income must be under $85,000 for one or two borrowers, or $120,000 for three or more borrowers.
* 15 per cent deposit required for loans above $200,000.
* Proposed loan limit increase to $320,000 or $350,000 would finance homes worth up to $376,470 or $411,765 if borrowers can find the required deposits.

* An earlier version of this story incorrectly said the 15 per cent applied to the whole of the loan.