There’s been a lot written about the 'First Home Loan’ programme in the press recently, particularly around changes to the deposit requirements. We thought it would be a good time to cut through some of the noise around these loans and explain what it means for your average first home buyer. The main takeaway is that these changes have opened the door for more people to buy where they previously may not have been able to. In fact, approximately 180,000 households who are currently renting, may now be in a position to buy according to data released by the Ministry of Housing and Urban Development.
So, where did it all start? The Welcome Home Loan (WHL) programme was originally launched, solely with Kiwibank, back in 2003 and came under the name In Reach. In 2005, it was opened up to other lenders and branded Welcome Home Loan. Currently, there are nine lenders actively using the Housing New Zealand programme which is probably more than you’d have thought.
Roll forward to 2019 and the Welcome Home Loan has now been rebranded First Home Loan (FHL), with some small but important changes.
The main change to note here is around the deposit requirement for borrowers.
The largest banks currently registered with the scheme include Kiwibank, Westpac, TSB, SBS and Co-Op Bank. Previously, Housing New Zealand underwrote the Welcome Home Loan with these banks up to a Loan to Value Ratio (LVR) of 90%. This meant that borrowers needed to find a 10% deposit to purchase their first home. Under the rebranded First Home Loan programme, the banks are now being permitted to consider lending to those with just a 5% deposit. This deposit can even be 100% sourced through the purchaser’s own KiwiSaver.
Up until now, the amount of banks that would consider lending up to 95% of a property’s value was very limited. However, the changes to the deposit requirements will definitely open things up for first home buyers.
For now, the qualifying criteria remains largely the same. To qualify for a First Home Loan with one of these lenders, you need to be mindful that:
These are the main criteria to be aware of, although there are further eligibility requirements that you must meet.
Since these loans are underwritten by Housing New Zealand, there are some additional documents borrowers will need to provide in order to obtain approval. These include a minimum of 6 months of banks statements, last 12 months IRD Earnings Summary and a letter from the borrower’s employer.
The main benefits to the customer in obtaining a First Home Loan approval (aside from the lower deposit requirement) is that borrowers with a low deposit will qualify for significantly lower interest rates than they would for a standard approval through the banks. This is because of the underwrite (through loan mortgage insurance) by Housing New Zealand which does a great job of de-risking the lending for the bank.
It's also worth noting that the qualifying criteria for a First Home Grant is similar to that of a First Home Loan. This means that individuals who have been contributing to their Kiwisaver for a minimum of 3 years may find that they also qualify for a grant of up to $10,000. For a couple, this could be $20,000.
As always, it’s important to remember that the smaller your deposit, the more the banks will scrutinise your income, expenses and debt position. With just a 5% deposit, the bank’s preference will be for customers with a clean credit history, low levels of short term debt and an ability to strongly demonstrate affordability. If you want to see where you stand after these changes, get in touch with Squirrel today.
We also have a handy First Home Buyers Guide which covers everything you need to know to get your foot on the property ladder!
See the following links for more info: