It seems like a distant memory now but up until about a year ago we were fixated as a nation on finding ways to get first home buyers into the housing market. First National, and then Labour, grappled with the issue, variously identifying rapid house price inflation, competition from investors and foreigners, and the Reserve Bank requirement for a 20 per cent deposit as obstacles preventing young people from buying their first home.
Then, in May 2018, something surprising happened. Property data company Valocity released a report which exploded as a myth the idea that first home buyers were closed out of the market.
Their report — which measured ‘mortgage registrations’ — showed that first home buyers everywhere except Auckland had dominated the number of new mortgages uplifted in each of the 5 years between 2013 and 2018.
According to that report, first home buyers were still uplifting 27 per cent of all mortgages in the year to March 2018 — and 12 months later, in the year to March of this year, that figure was still sitting at 28 per cent.
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In fact, it’s arguably easier for first home buyers right now because we’re in the flat part of the property cycle in Auckland and moving into it in other parts of the country. That means that investors, with whom first home buyers may have been competing, are much less active in the market than they were two years ago. So if you’re a first home buyer there’s less price competition, less pressure to buy, and more time to find a property which meets your needs.
Despite this, we shouldn’t stop doing everything we can to get first home buyers into the market. There’s no doubt that the 20 per cent deposit requirement imposed by the Reserve Bank is still the single biggest obstacle. In Auckland, where the median house price is around $850,000, you’d need to find $170,000 just to meet the deposit requirements — a tough call for any first home buyer.
So what are your options if you’re trying to buy your first home? Are there any shortcuts to finding that deposit? As it happens – there are. Here are some ideas:
1. Negotiate on price. One of the advantages of a flat market is that price negotiations are on a more equal footing and any saving you make on the price also mean a saving on the deposit.
2. Use Kiwisaver. If you’ve been a Kiwisaver member for more than three years you may be able to withdraw some of your KiwiSaver savings (provided you leave a minimum balance of $1000 in your account) to put towards your first home.
3. Apply for a Kiwisaver Homestart Grant. In addition to putting your Kiwisaver savings toward a deposit, you may qualify for a Homestart Grant. If you’re purchasing an existing home the grant is $1000 for each year you’ve been a member of Kiwisaver for up to five years ($5000). If you’re building or purchasing a new home, or the land on which to build a new home, the grant is doubled – up to $2000 for each year you’ve been a member of Kiwisaver, for up to 5 years ($10,000).
4. Apply for the Welcome Home programme. If you’re buying your first home and your household income has been $85,000 or less for the past 12 months (if you’re single) or $130,000 (if you’re a couple) you may qualify for this scheme, which allows you to buy with just a 10 per cent deposit, regardless of whether the home is new or existing. There are a range of other criteria — and not all banks are partners in the programme — but it’s definitely worth checking out the Welcome Home website.
5. Buy new. If you’re buying a new dwelling you only need a 10 per cent deposit. This this doesn’t just apply to first home buyers — anyone is eligible, even investors! This is probably one of the least understood aspects of the current Reserve Bank rules.
6. Access the Bank of Mum and Dad. Under certain circumstances your bank may allow you to utilise support from Mum and Dad to help you into your first home. This could take the form of them providing your deposit — or it could mean using equity in your parents’ own home as security for your loan, effectively enabling you to borrow up to 100 per cent of the purchase price. As with most things there are conditions governing how and when this can be done.
- Ashley Church is the former CEO of the Property Institute of New Zealand and now writes on behalf of OneRoof.co.nz
