A hand up to home ownership

The components of the package are an extension of the Mortgage Insurance Scheme, a housing deposit subsidy available through KiwiSaver, and a home ownership education programme.

"When fully in place, it is expected to help 5000 to 8000 first home buyers a year," Maharey said. "It does not exclude low income households, but is aimed primarily at those earning above $40,000 a year, as borrowers must be able to service a mortgage."

The Mortgage Insurance Scheme [MIS] helps people who can support a mortgage but can raise little or no deposit. It was introduced as a pilot programme in 2003 by Housing New Zealand Corporation and Kiwibank. Applicants must have a good credit history, not already own a home, and intend to live in the house.

The scheme enables people to borrow most or all of the cost of a house with little or no deposit. Housing New Zealand Corporation insures against bad debts by charging a premium of 3% of the loan. 1% is paid by the borrower and 2% by the government. If the borrower defaults, the insurance covers any shortfall between the outstanding loan and the amount recovered through a mortgagee sale. To date, there have been no defaults.

The budget aims to increase the number of loans under the MIS, from fewer than 1000 a year to 5000 a year by 2007-08. It will do this by:

• allowing lenders beyond Kiwibank to participate; and
• raising the eligibility cap from $65,000 to $85,000 annual income for a household with one or two borrowers, and from $100,000 to $120,000 for households with three or more borrowers.

These changes will take effect in July 2005 and are expected to cost $22 million a year from 2008-09.

First home buyers who have been members of KiwiSaver for three years will be eligible for a one-off deposit subsidy of $1000 for each year of KiwiSaver membership, to a maximum of $5000. They will also be able to put their savings, plus interest, towards the price of their new home, and put their subsequent KiwiSaver contributions towards their mortgage.

Preliminary estimates are that around 3000 households a year will take advantage of the home buying assistance offered by KiwiSaver. These opportunities will be available from 1 April 2010 – three years after KiwiSaver’s start date of 1 April 2007. The annual cost is estimated to rise to around $35 million a year.

The criteria attached to the deposit subsidy reflect the fact that it is intended to assist toward the purchase of a lower-cost ‘starter’ home. Income and purchase price caps will apply but have yet to be finalised. House price caps will reflect regional price variations.

The deposit subsidy will be available to members of registered superannuation schemes that meet eligibility criteria. Eligibility will be determined on an individual basis. The subsidy will be in the form of a suspensory loan, rather than an unconditional grant, and will have to be repaid if the recipients stop living in the house within a reasonable period.

"The housing package has been designed to be responsive to individual circumstances," Maharey said. "Some home buyers will need only the Mortgage Insurance Scheme. Others might take advantage of just the deposit subsidy, or the draw down facilities from KiwiSaver. Some will need to draw on all these initiatives to get into their own home."

Maharey said the education programme would not be compulsory but that first home buyers would be strongly encouraged to take advantage of it to improve their knowledge of what home ownership involved. Plans were to provide seminars for 1000 people next year, rising to around 5000 a year by 2006-07, at a cost of $2.4 million a year.

"The government is conscious of the need to provide home ownership assistance that does not distort the housing market or encourage people to borrow beyond their means. I am confident we have got the balance right with this package," Maharey said.

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