Government home ownership scheme widened
Hon Chris Carter
Minister of Housing
13 August 2006 Media Statement
Government home ownership scheme widened
The scope of the government's Welcome Home Loan scheme is to be widened to increase the number of people able to use it to buy homes, Housing Minister Chris Carter announced today.
"Cabinet has agreed to new criteria for the Welcome Home Loan, doubling the proportion of the national housing market accessible to people without a deposit under the scheme," Mr Carter said.
"This decision is part of a broader exploration of new ways the Labour-Progressive government can assist with reversing the decline in New Zealand's home ownership rates, and give a hand-up to first-time buyers."
The Welcome Home Loan Scheme underwrites private lenders, such as banks and building societies, to give home loans to people on the margins of traditional mortgage criteria.
It was originally established to help a niche of households which research suggested could technically service a loan but were effectively locked out of the housing market because they lacked a sufficiently large deposit to meet lending requirements.
"The scheme has helped about 1800 of these households into their own homes, but it needs a shot in the arm, " Mr Carter said.
"The scheme is calibrated for the lower rungs of the housing market, but since it was designed the lower quartile price of residential properties has risen 55 per cent. This has severely cramped the scheme's usefulness. The no-deposit component of it now enables access to just 11 per cent of total house sales."
To combat this problem, Cabinet has agreed to:
- Increase the limit for lending with no deposit from $150,000 to $200,000;
- Change the minimum deposit required for lending over $200,000 from 5 per cent of the total loan value to 15 per cent of that portion of the loan, which is above the 100 per cent lending limit.
These changes mean a household can borrow $200,000 without a deposit, and can borrow up to $280,000 in total under the scheme. But for anything borrowed over $200,000, a deposit must be paid. If a loan were sought for $250,000, then a deposit of $7,500 would be required, being 15 per cent of $50,000. The deposit on a loan of this size is 40 per cent smaller following Cabinet's decision.
Households can qualify to use the scheme if they consist of one or two people earning up to $85,000, or three or more people earning up to $120,000.
"Under the new criteria, a Welcome Home Loan should enable access to up to 22 per cent of national house sales without a deposit, and up to 50 per cent with a smaller deposit," Mr Carter said.
"Some 42 territorial authority districts have lower quartile house prices below the $200,000 no-deposit limit.
"By reducing the amount required as a deposit to borrow up to $280,000, we are also easing access to homes on the urban fringes, such as Hutt City and Porirua near Wellington, in Nelson, Christchurch, and the Franklin, Papakura and Manukau districts in Auckland.
"However, to ensure the Welcome Home Loan scheme remains relevant to the market, I am not ruling out further changes to it," Mr Carter said.
"The scheme's criteria, including the top lending limit of $280,000, will remain under review throughout the year while the government considers a new shared equity scheme to reach into other parts of the housing market. It is important this initiative complements the Welcome Home Loan scheme, and the government's savings initiative, Kiwisaver."
The criteria changes to date will lift the total annual cost of the scheme to about $4.9m, which will be paid for from within Housing New Zealand's current budget allocation.
Cabinet's decisions will take effect from 8 September 2006.
For more details on the Welcome Home Loan visit
- www.hnzc.govt.nz or
Editor's Notes: All housing market figures in this release are based on Quotable Value New Zealand's report on house sales to end of March 2006. This is the latest report available from QVNZ.
Attached: Scenarios, and lower quartile house prices by district