Government recently announced the removal of the First Home Grant which provided eligible first home buyers with up to $5,000 towards an existing home or $10,000 for a new home. Removal of the First Home Grant could be a setback for some first home buyers, but there are still other options to help enter the property market in New Zealand. Here are some alternative strategies, including shared equity ownership, low deposit home loans, KiwiSaver Withdrawal, and parental assistance.

Shared equity ownership

A shared equity scheme is an agreement between you and a provider, such as Government, local council or iwi, which splits the cost of home ownership into three parts:

1. Your share is your deposit which needs to be at least 5% of the purchase price made up of your own savings, KiwiSaver Withdrawal or cash gifted by family or friends.
2. Your provider’s share makes up the rest of your deposit, and the provider will own a share of your home equal to the amount they contribute, which you can buy back within an agreed time period.
3. Your lender’s share is the mortgage for up to 80% of the purchase price.

The benefits of shared equity include:

• Lower deposit requirements: You can buy your first home together with a Shared Equity Provider with as little as 5% deposit.
• Reduced mortgage repayments: Save on interest with no additional Low Equity Margin (LEM) added to your interest rate.
• Option to buy more: Own the home together with your Shared Equity Provider and work towards full ownership as you pay back the provider’s portion.

Low-deposit home loans

While the gold standard for deposits is generally considered as 20% of the purchase price, many banks in New Zealand offer mortgages to home buyers with smaller deposits, often as low as 10% or even 5%. And, starting from July 1, the amount of lending banks can do to borrowers with smaller deposits will increase to 20%.

Government’s First Home Loan scheme, underwritten by Kāinga Ora, is a low deposit home loan available to first home buyers, which allows certain banks to issue loans to eligible borrowers with deposits as low as 5%.

To be eligible for a First Home Loan, you must:

• Have at least 5% of your own deposit
• Be buying a home you plan to live in, not an investment property
• Be a New Zealand citizen, permanent resident, or a resident visa holder who is "ordinarily resident in New Zealand"
• Be a first home buyer, or a previous home owner in a similar financial position to a first home buyer
• Have a before tax income from the last 12 months of:
  • $95,000 or less for an individual buyer without dependents; or
  • $150,000 or less for an individual buyer with one or more dependents; or
  • $150,000 or less (combined) for two or more buyers, regardless of the number of dependents

KiwiSaver Withdrawal

Your KiwiSaver balance can be a significant source of funds for a deposit, and many first home buyers use their KiwiSaver savings as the bulk of their deposit.

With KiwiSaver Withdrawal, you can withdraw all of your employer’s contributions as well as your own, any government contributions and any interest you’ve earned, leaving just $1,000 in your account. “Second-chance buyers” who previously owned a home may also qualify, as long as you haven’t used KiwiSaver to buy a property in the past.

You must have contributed to KiwiSaver for at least three years in order to access KiwiSaver Withdrawal.

Parental assistance

Many first home buyers get financial help from their families to boost their deposits and borrowing power, and the "bank of mum and dad" can provide financial support in a few ways:

• Co-borrowing: Combining your incomes and savings with family or friends to secure a mortgage together can significantly increase your borrowing power and make it easier to afford a home in a competitive market.
• Guarantee: A guarantor is someone who agrees to take on the financial responsibility of your mortgage if you are unable to make the payments. This person provides an additional security to the lender – usually their own home - assuring them that the loan will be repaid even if the primary borrower defaults.
• Cash gift: Parents or family members can provide cash gifts or low-interest loans to use as part of your deposit.

Reach your property goals

While the end of the First Home Grant certainly presents some challenges, there are still viable options available for first home buyers in New Zealand. Get help navigating your path to home ownership. Contact Mortgage Express today to connect with a mortgage adviser and start your journey towards owning your first home.