Backing to help first-home buyers
Explores what options are available to help first-home buyers get a foot in the property market.
Times remain tough for first-home buyers wanting to make the most of the softer market, but different ownership models can help those struggling to get in.
Falling house prices, and an increase in the number of properties for sale have made the market more attractive to many who were sidelined during the 2020-21 boom.
Despite rising mortgage rates and ongoing economic uncertainty, first-home buyers are returning to the market, and real estate agents and mortgage advisers are reporting a rise in inquiries and interest.
The Government’s changes to the price caps on First Home Grants and Loans earlier this year are helping. Recent Ka¯ inga Ora figures show a significant increase in the number of grants and loans approved in the last quarter.
Still, affordability issues remain a problem for many, and new data reveals that while the length of time it takes to save a deposit for a median first home has declined, higher interest rates are biting.
But there is other assistance available for those struggling to enter the market.
The Government moved to provide more support to aspiring homeowners with the introduction of a $400 million Progressive Home Ownership scheme, which was officially launched in July 2020.
It aims to get low-income families into homeownership by supporting them with ‘‘shared equity’’ arrangements, in which the Government takes on some equity in the house, allowing lower deposits for mortgages.
Under the scheme, there are two pathways. One is First Home Partner, which allows first-home buyers, who can service a mortgage but need help with a deposit, to buy a property with Ka¯ inga Ora.
Ka¯ inga Ora helps out with the deposit in return for an equivalent share of ownership in the home. The maximum contribution is whatever is lower between 25% of the purchase price or $200,000 and, over a 15 to 25-year time period, the homeowner buys out Ka¯ inga Ora’s share.
To qualify, buyers’ total household income cannot be above $130,000, and they have to buy a new-build home, or one off the plan, although people can choose a home to buy anywhere in the country.
Ka¯ inga Ora homeownership products manager Jason Lovell says First Home Partner was launched last October, and 74 people had bought a home through it by the end of August. A further 89 sales and purchase agreements have now been signed.
Some lawyers say a lot of work is required, and Lovell says a signed commitment agreement, sale and purchase agreement and lending preapproval from a participating bank are needed to approve a purchase.
The other option is the provider pathway, in which community housing providers are funded to help people to secure a home.
More intensive financial support, including budgeting advice, is part of this.
A number of providers are involved in the scheme, but the Housing Foundation and the Queenstown Lakes Housing Trust (QLHT) were the first. The foundation offers shared ownership options, and the QLHT has a 100-year leasehold programme.
Providers develop, or work in partnership to provide, the homes involved themselves, so buyers are not able to choose a home on the open market. They also have to meet the providers’ eligibility criteria.
After a slow start to the scheme, demand for this path to ownership is increasing.
The Government’s housing dashboard says that between December 2020 and August this year 120 new homes were supplied, and a further 140 are contracted.
The QLHT has helped 46 households since 2019, and has 800 on its waiting list. Habitat for Humanity, which is also part of the scheme with a buy-to-rent model, has had 16 families move into their own homes, and another 15 approved to do so, over the past 18 months.
Providers involved are keen to scale up their services further. The QLHT has a goal of 1000 homes by 2038, for example.
Housing Foundation chief executive Dominic Foote says his organisation has offered shared ownership since 2007 and has helped about 400 people over that time, but wants to reach much bigger numbers.
‘‘We want to do more of this, and we want to help other organisations do it, too. We want this route to ownership to become mainstream, and recognised as an option by banks, and others in the sector. The more that happens, the more respectable it will be.’’
Part of the challenge around achieving that is to attract other funding to support it, he says.
For buyers who want to choose a home from the open market, a non-Government shared ownership option is YouOwn.
Established five years ago, it is for families with limited deposits, and has helped 155 into homes.
It operates by funding the difference between what a homebuyer has and what they need to get a 20% deposit, and its partners, Resimac and SBS, provide an 80% loan on that.
It then has an equivalent percentage stake in the house, until the homeowner buys its share, which is possible after five years, or if the property is sold.
YouOwn executive director Nigel Spratt says because it is privately funded it can be more flexible, so it no longer has an income cap, and people are able to buy existing homes, not just new builds.
‘‘It is a point of difference for us, and we find that many firsthome buyers want existing homes as they often like to make it their own and add a bit of value.
‘‘We don’t do houses in need of huge do-ups though, as there isn’t much point in putting someone in a house that needs significant renovation work if they don’t have the funds to do it.’’
The organisation is like a bank in that as long as a property has a building report and valuation, and the borrower meets lending criteria, they can get help to buy the home of their choice, he says.
Another option for struggling first-home buyers is to buy with family or friends. Kiwibank launched Co-own earlier this year, a vehicle to help people team up with others to buy.
But Mortgages Online director Hamish Patel says other banks do work with people wanting to buy in groups too, and that while family members have bought together for years, buying with friends is a trend that is becoming increasingly popular.