If re-elected National will widen access to the Kāinga Ora First Home Loan scheme to buyers earning up to $300,000 combined, while New Zealand First is opting for a shared equity scheme.    

Under National’s proposal eligible first home buyers to will able to purchase a home with deposit as low as 5% rather than the standard 20%.

If buyers take part in New Zealand First’s scheme the Government will own a percentage of the property alongside the buyer. The homeowner could potentially buy the Government's share back over time or repay it when the property is sold.

Currently Kainga Ora’s First Home Loan is capped to people earning below $95,000 on their own or a combined income of $150,000 or less.

The scheme’s income caps are too restrictive and haven’t been updated since 2022, Chris Bishop, National’s housing spokesman says.

They cut out a junior doctor on $100,000, a young couple, like an electrician on $85,000 and a teacher on $78,000, or two friends who have just graduated from police college and are earning $77,000 each.  

The average gross income of first home buyers is about $146,000. That means about half of first home buyers earn over $146,000 now.

Bishop says the policy will support the party’s vision of returning home ownership to rates of about 74%, up from 66%.

First home buyers are dominating the housing market, making up 29% of all purchases – the highest July share in more than 20 years.

Squirrel Mortgages chief executive David Cunningham told Midday Report as the policy is a loan it is good fiscal policy because it is not a "giveaway", but borrowers will have to be able to afford to pay it back.

Buyers will also be at risk of falling into negative equity, where they owed more than the house iss worth, but will not be forced to sell and the Reserve Bank will continue monitoring the system's stability.

"It has put in place loan-to-value ratios - in other words, how much you can borrow over that 80% level... and debt-to-income ratios which came in more recently, and those sort of control how much risk there is in the system.

"The system-wide stability has got good guardrails... so, you know, this is very targeted."

The policy does not remove the need to pass a lender's affordability and servicing tests, mortgage advisory firm Luminate says.

With mortgage rates starting to rise again, borrowing power could become just as important as the size of the deposit.

Under National’s proposal the 5% deposit on a $800,000 home, just $40,000, but buyers will still need to borrow about $760,000 and a lender will assess whether that is comfortably affordable.

Luminate says while a 5% deposit scheme could solve the deposit problem, it may not solve the borrowing-power problem.

Could shared equity make a bigger difference than a 5% deposit?

Potentially, Luminate says.

Using an $800,000 home, with a buyer deposit of $40,000, Government equity contribution of $160,000, the mortgage required would be about $600,000. 

The important difference is the mortgage becomes smaller. This will improve both affordability and the buyer's chances of meeting lender servicing requirements.

From a lending perspective, shared equity can potentially have a greater impact than simply lowering the deposit requirement, the mortgage advisory firm says. A smaller mortgage means lower repayments.

But there are still major unanswered questions, including: how much of the property would the Government own?; who receives the capital gain on the Government's share?; what happens if the property falls in value?; can the homeowner renovate or extend the property?; how will refinancing work?; can the owner buy the Government's share out early?; and what happens when the property is sold?

Meanwhile Cotality chief property economist Kelvin Davidson says National’s proposed change will have limited impact and shouldn’t push house prices higher as values are flat despite the demand from first home buyers.

“Some might argue it is a solution looking for a problem, but it is probably just reflecting reality without transforming the housing market or putting up prices.”

Property listings have also remained relatively high, giving buyers more choice and often more negotiating power than during previous property-market peaks.

First-home buyers might be receiving more political attention, but many are already actively buying homes.