First home buyers seeking alternative funding mechanisms will be pleased to see regional price caps have been removed from the Government’s Kāinga Ora First Home Loan scheme.
The scheme, designed to get more first home buyers into their own homes by lowering the required deposit to 5%, previously stipulated maximum prices within which buyers could apply for loans, based on regional market prices around New Zealand.
The caps limited and, in some places, prohibited first home buyers making use of the scheme. For example, the cap for Auckland was set at $625,000 for an existing dwelling and $650,000 for a new dwelling, which even in the current retracting market left buyers with little options.
The price caps were removed in June, a positive step for first home buyers, but there are still other criteria prospective applicants should consider.
Select lenders issue First Home Loans, underwritten by Kāinga Ora, and while Kāinga Ora has set criteria for applicants to meet, you may also find each bank also has their own lending criteria.
Applicants must still meet lenders’ debt serviceability criteria and as the Reserve Bank continues to increase the Official Cash Rate, debt serviceability is likely to be the greatest hurdle for applicants.
Banks stress test all mortgage applications to around 2.5 percentage points higher than the floating interest rate to test applicants’ ability to meet mortgage repayments. When interest rates were at an all-time low, the stress test was sitting around 5.5 percent. As interest rates have gone up the stress test can now be as high as 8 percent, a challenge to meet on a limited income.
There are also some differences in other criteria too. Kāinga Ora requires applicants to be a New Zealand citizen or resident, and to be eligible for the lending, applicants must also meet Kāinga Ora’s income caps calculated on your previous 12 month’s earnings.
The caps are as follows:
- $95,000 or less before tax for an individual buyer
- $150,000 or less before tax for an individual buyer with one or more dependents
- $150,000 or less before tax for one or more buyers irrespective of how many dependents they have
It’s worth remembering the caps relate to the previous 12 months, not your current earnings, in the event your circumstances have recently changed.
Other criteria set by Kāinga Ora include that applicants must intend to live in the home they are purchasing for at least six months. Applicants must also have been in their job for at least 12 months or demonstrate they have been in the same industry or profession for at least 24 months.
If you have purchased a home previously but your circumstances have changed, and you no longer own a home, you may also still be eligible for the scheme as a ‘Second Chance Home Buyer.’ In this case applicants must be in the same situation as a first home buyer and if they meet the criteria, they receive an eligibility letter to submit with their application.
If you have a unique set of circumstances, it is worth speaking to one of our trusted mortgage advisers who can help you navigate all these conditions and ensure you get the best outcome.
Jordan Cameron
Home Finance Expert
Total Mortgages
