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Mortgage market failing home buyers

Media release 24 October 2013:
Mortgage market failing home buyers

Speaking at the annual general meeting of Community Housing Aotearoa, David Cole of the Queenstown Lakes Community Housing Trust (QLCHT) made an impassioned argument that the mortgage market is continuing to fail the next generation of prospective home buyers.

After listing a myriad of factors that expose home buyers to unfavourable conditions, Cole made a strong case for Starter Loans or Housing Bonds as an alternative to the current structural problems and obstacles adversely affecting new home buyers.

In 2011 the QLCHT began piloting its own Starter Loan scheme through a wholly-owned subsidiary, Queenstown Housing Bonds Ltd, with funding of $6 million provided by Central Lakes Trust.

Findings of the two-year pilot will be presented to the Central Lakes Trust next month, with all indications being that it has been a resounding success - to the extent that it could be considered as a commercially viable model to be rolled out more widely.

Unlike the preponderance of variable mortgages on the market, the scheme protects first-home buyers by securing them access to affordable mortgage rates that remain locked in for five years, delivering certainty to household budgets and restoring confidence to buyers with no penalties if homeowners wanted to exit early.

At the end of five years home buyers in the scheme should have paid back 10 per cent of the principal on their loan to the Central Lakes Trust and could then convert to a pre-approved market rate mortgage with SBS Bank. The bond and security are underwritten by the Queenstown Lakes District Council, although Cole remained hopeful that the Government could see the merits of such a scheme and support its expansion with a Government guarantee.

“Our next generation deserve a much better deal,” said Cole, who then outlined the way that funding for an expansion could easily be sourced if just 5% was set aside from the pool of $48 billion held across Community Trusts, ACC and NZ Super funds.

“As a back of the envelope scenario that would see $2.4 billion become available. If that was allocated in $330,000 lots that could result in more than 7000 Home Starter Loans”.

Cole said that an expansion of a Starter Loans scheme could influence better outcomes for New Zealanders and made a suggestion that Community Housing Aotearoa could consider taking a leadership role in sponsoring such an expansion, especially in order to “create dividends for other initiatives and as an opportunity to partner with other stakeholders”.

Cole said there is “scope to be challenging the government on (all of) these issues”, adding that the large sums of GST paid on new houses, potentially amounting to as much as $1 billion a year, was another barrier that the Government could address.

Referring to the high risk created for lenders, but not necessarily banks, in the prevailing mortgage environment he made the point that no one would tolerate an equivalent volatility in the realm of tax. “Imagine the outcry if people met to re-set our income tax every six weeks and the income tax rates were ratcheted up?”


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