$35m Shared Equity pilot funded in Budget 2008
Hon Maryan Street
Minister for Housing
16 May, 2008 Media Statement
$35m Shared Equity pilot funded in Budget 2008
Budget 2008 will fund a two year Shared Equity pilot to assist up to 700 households into starter homes, Housing Minister Maryan Street announced today.
The government is investing $35 million in capital into the pilot, which will be restricted to homes in regions with the highest house prices: Auckland, Wellington, Nelson, Christchurch and Queenstown.
“Many modest-income, first-home buyers in these areas have been shut out of home ownership as a result of unprecedented house price rises since 2002,“ Maryan Street said.
"Shared Equity is a new type of home ownership in New Zealand. The pilot provides an opportunity to test the demand for it, and the application of it, in markets.
“It is designed to complement existing government initiatives to assist modest first-home buyers, such as the Welcome Home Loan and KiwiSaver. It fits with broader government plans to increase the supply of affordable housing.”
Shared Equity will see the government provide an interest-free loan on a house of between 5 to 30 per cent of its value. This reduces the size of the conventional mortgage an eligible household takes, Maryan Street said.
“The scheme will be limited to those with a household income up to $85,000, who meet certain criteria. A maximum house price cap, which will vary across the targeted regions, will apply and this will move with the market.
“A minimum five per cent deposit will be required, ensuring households benefiting from the pilot have demonstrated a commitment to home ownership, and are making an investment in their home," Maryan Street said.
"The scheme has been tightly targeted specifically to assist a group of New Zealanders who have saved a deposit for a home, but who cannot get on the property ladder in the area where they live and work because starter home prices have moved too far ahead of the maximum mortgage they can afford.
"These households would normally have expected to buy their first home by now, except for huge property increases in recent years. While the existing Welcome Home Loan is able to assist such households in rural and provincial areas, a different tool is needed in higher priced markets," she said.
The pilot scheme will be officially launched on 1 July 2008. It will be monitored and evaluated after two years, with further decisions taken on the use of Shared Equity at that time.
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Key Elements of the Shared Equity Pilot Scheme
The scheme:
• Is available in: Auckland, Wellington, Nelson, Christchurch,Queenstown;
• Involves the provision of a government loan worth between five and 30 per cent of the value of the house (depending on the region);
• Imposes a price cap on eligible houses in each of the five regions;
• Is accessible to families with a household income of less than $85,000 (gross), who can sustain a mortgage;
• Is accessible to families with a deposit worth at least 5 per cent of the value of the home they wish to purchase, who could not otherwise afford a mortgage on a low-priced house;
• Requires people to live in the home they purchase;
• Is accessible to first-home or ‘second chance’ buyers (households who have owned a house previously but are in a similar position in terms of assets and incomes as first-home buyers).
ENDS
Shared Equity Pilot
Scheme
Questions and Answers
How
does Shared Equity work?
Shared Equity is a form
of home ownership assistance used in the United Kingdom and
Australia.
It is designed to assist households who cannot buy a home in the area where they live and work because house prices have moved too far ahead of the maximum mortgage they can afford.
To overcome this hurdle, the government’s new Shared Equity pilot scheme will see Housing New Zealand provide an interest free loan on a home an eligible household wants to buy. This means the mortgage the household has to raise and make repayments on is reduced.
The government’s loan will exist as a second mortgage over the property. It has no interest costs, and requires no repayments until either the house is sold, or the loan term ends. At sale or at conclusion of the loan term, the household must repay the loan to Housing New Zealand. If the value of the property reduces or increases, so does the equity share, and the amount that must be repaid.
The homeowner pays all costs of ownership, such as rates and maintenance.
An example:
Borrow
You buy a
property worth $240,000 made up of:
• Your 5% deposit
of $12,000
• Normal home loan of $180,000
• A
Shared Equity loan of $48,000 (20% of the property
value)
Repay
You sell the property for $300,000. You
repay:
• Normal home loan of $180,000 minus any
principal repayments
• Shared Equity loan of $60,000
(20% of the property value at sale)
• The remaining
$60,000 (plus any principal repayment on your normal home
loan) is your equity.
Who is eligible for a Shared
Equity loan?
To be eligible for the pilot scheme
applicants must:
• hold New Zealand citizenship or
permanent residency, be normally resident in New Zealand,
and have resided continuously in New Zealand for at least
two years at any one time since becoming a citizen or
permanent resident;
• intend to live in the home they
purchase;
• be first home owners or ‘second
chancers’ (households who have owned a house previously
but are in a similar position in terms of assets and incomes
as first home buyers);
• not be able to afford a 100
percent mortgage for a starter house (defined as a home in
the lower quartile of the market) and require assistance
through shared equity to become a home owner;
• not
qualify for the government’s Welcome Home Loan;
•
meet normal commercial lending criteria for the non-equity
share mortgage (such as a good credit history, acceptable
levels of consumer debt and the income needed to service the
mortgage);
• be buying a dwelling at 90 percent or less
of the lower quartile price of houses sold over the most
recent quarter in each of the five applicable regions (see
house price caps);
• have a household income less that
$85,000 (gross);
• have no realisable or discretionary
assets that could reasonably be expected to contribute to
the purchase of the property, other than a deposit;
•
have five percent of the value of the property being
purchased as a deposit.
When and how can I apply?
The
pilot scheme will officially launch in 1 July 2008. Anyone
interested in participating can contact Housing New Zealand
at 0800 804 692 to register for an information
pack.
Households are advised to contact Housing New
Zealand before looking for a house they hope to buy through
the scheme.
Why must I have a 5% deposit to access
the scheme?
Your ability to save for a 5% deposit will
signal to the Crown that you are serious about home
ownership, and are prepared to make an investment of your
own in the home.
Why is there a cap on the income my
household can earn to be eligible the scheme?
The pilot
scheme is tightly targeted at those households who can
afford to make repayments on a mortgage but are unable to
afford 100 per cent mortgages or other government
initiatives such as the Welcome Home Loan.
Why are there
caps on the price of houses that can be purchased under the
scheme?
The cap on household income in the scheme means
there is a maximum amount people can afford to borrow up to,
even with a Shared Equity loan. The price caps reflect that
maximum, and ensure that the pilot scheme is used to help
households buy starter homes only.
The caps are
calculated quarterly based on house sales in each applicable
region. The house prices eligible for the Shared Equity
Pilot Scheme for the first quarter are detailed below.
Region House Price
Cap
Auckland $305,000
Wellington $260,000
Nelson $240,000
Christchurch $255,000
Queenstown $385,000
Why is the scheme confined to just five regions?
The
scheme has been specifically designed for regions where
those on modest incomes are unable to purchase starter homes
because prices are too high, and where existing products to
improve access to homeownership have only limited impact.
The regions chosen for the pilot all have lower quartile
house prices above the New Zealand average house price of
$255,000, as at December 2007.
What range of Shared
Equity Loans are available?
The government’s equity
share in a home will vary according to the region where the
home is being purchased. The maximum stake Housing New
Zealand will take is 30%, and the minimum stake is 5 %.
Shared Equity loan limits for each region are
below.
Region Minimum Share (of a property) Maximum Share
(of a
property)
Auckland 10% 30%
Wellington 10% 20%
Nelson 5% 10%
Christchurch 10% 20%
Queenstown 10% 30%
The size of the equity shares reflects the relative expense of each region.
How many loans will be allocated per region?
Allocations will be made quarterly and be based on the indicative populations in the regions targeted. These will be reviewed quarterly to see if adjustments are required. Seasonal variations are likely.
Will the scheme
apply to houses in the Hobsonville Development?
No, the
first set of the houses in Hobsonville are not expected to
be on the market until late next year. The government is
considering other mechanisms to ensure a portion of those
houses are affordable.
Who is responsible for
maintaining the home?
The homeowner in receipt of the
Shared Equity loan will be responsible for the normal
ownership costs of the home, such as rates and utilities,
and will also be responsible for maintenance on the
home.
What if I improve my home?
The government does
not wish to discourage improvements by homeowners, and so
the increase in value attributed to any approved
improvements to a home in the Shared Equity pilot scheme
will be given to the household. Households will be required
to obtain approval from Housing New Zealand in advance of
the improvements they wish to make to their home to ensure
there is no later disagreement over the definition of an
“improvement”.
What happens if more eligible people
apply for the pilot scheme than there are available
loans?
Housing New Zealand will operate a ballot system
if the demand exceeds available loans. However new builds
will be prioritised and will bypass the ballot system, to
try to help grow the supply of starter homes being built.
Full details will be available when the scheme launches on 1
July 2008.
Can I repay the government’s shared equity
loan?
Yes, households can reduce their Shared Equity loan
by buying out a proportion of the loan based on the market
value of the home at the time. The minimum amount that can
be bought out at any one time is 5 percent of the market
value.
There are also “staircasing” incentives built
into the scheme for the homeowner to buy out Housing New
Zealand’s share early. For each 5 percent repaid the
homeowner will receive an additional 1 percent as an
incentive. This incentive will only be available to
households for the first 10 years of the Shared Equity
loan.
Who carries the risk in a falling market?
Any increase or decrease in value is to be shared between the homeowner, and Housing New Zealand. If a home drops in value, the value of Housing New Zealand’s loan, and the amount the homeowner must repay, also drops.
How much
money is involved and how many loans will there be?
The
government has allocated $35 million over two years to the
pilot. It is estimated about $9.4 million will be repaid
between 2010 and 2012. The projected return is based on a
range of factors including the staircasing incentives
(referred to above) and standard real estate turn-over
figures for first-home buyers.The exact number of loans
which will be made will depend on the size of each loan
approved. It is anticipated between 500 and 700 loans will
be made.
What happens after two years?
That depends on
what the monitoring and evaluation of the pilot scheme
shows. Shared Equity is a largely new model of homeownership
and it is unclear how much demand there is for it. Those who
have received a Shared Equity loan during the pilot will not
be affected by the conclusion of the
pilot.