Unless you have been living under a rock, you have probably heard something about the governments plan to limit the amounts of high LVR loans that can be offered by major banks.
If not, here’s a quick breakdown:
Post-recession, the government is concerned with the levels of New Zealander’s debt, and the amount of it which is tied up in the property sector. Furthermore, with house prices skyrocketing in major city centers, this problem is only being exacerbated. To counteract this, the government is indicating it will cap the amount of high loan-to-value-ratio (LVR) loans that can be offered by major banks. However, in doing so it may leave first homebuyers unable to access an already difficult property market.
Ever since the Reserve Bank indicated their plans in early May, there has been widespread outcry in support of new homeowners, with proponents such as Russell Norman (Green Party leader) and David Shearer (Labour party leader). Shearer having stated, “The most important issue for first-home buyers is that their house is affordable”, before going on to question the potential effectiveness of the LVR limits.
This outcry was addressed soon after, with John Key at the time admitting that first homebuyers had been overlooked in this policy statement. He was also quick to say that a compromise would be sought, and as anticipated it was announced in the National Parties annual conference in Nelson today.
So what are these changes?
Firstly, the $5000 Kiwisaver deposit will now be made available for couples who jointly earn up to $120,000 –rather than the previous $100,000.
Furthermore, the house price cap criteria for further governmental financial assistance will also be relaxed somewhat in areas of housing unaffordability, i.e.
- Auckland will increase to $485,000- from $400,000
- Queenstown and Wellington will rise to $425,000 from $400,000
- The $300,000 cap in Christchurch will also rise- to $400,000 in Christchurch Central and Selwyn, and to $325,000 in 10 other suburbs.
Additionally the requirements for the governments ‘Welcome Home’ loans are going to be lessened, in order to be more in line with Kiwisaver’s. This, according to John Key, is set to triple the number of loans from about 850 loans a year to 2500 a year.
The Catch?
Currently, the Welcome Home Scheme helps low income earners to buy their first home, by insuring a loan from a bank. This can be without any deposit if the house is under $200,000, and a fifteen percent deposit is available on any amount over the $200,000.
However this is set to change- to qualify for either a Welcome Home or Kiwisaver subsidy, first homebuyers will now need to save a deposit of at least 10%.
The justification for this? According to Key- “International experience shows it’s risky to lend 100 per cent of the value of a first home. So in expanding these schemes, we are assisting these people to put together a deposit, but we are also requiring them to have an initial stake in their asset as well.”
These changes won’t come in until October 1st.
The Bottom Line?
No matter what, it is going to get harder for anyone to purchase property without sizeable deposits, however these policies do ease some of the difficulty for first homebuyers.
If you can scrape together a ten percent deposit, and find a cheap enough property in the current exorbitant property market, then these schemes just may leave you be better off.
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