Today I was invited to discuss what has happened to First Home Partner on Radio New Zealand’s Nine to Noon.
We discussed what First Home Partner is and how it has helped people, but also the implications of it being suddenly withdrawn and what the future could or should look like.
To start the discussion we should look at what it is and the history of the First Home Partner scheme, and then will look at why it became so popular and round off with what could or should happen.
The Purpose of First Home Partner
First Home Partner is a shared home ownership scheme where the Government takes a shared ownership in a home via Kainga Ora (previously Housing New Zealand) to help first home buyers who may otherwise not be able to buy a home.
These types of schemes exist in many countries and have been hugely popular and successful, but First Home Partner was more generous than most with Kainga Ora offering up to 25% (to a maximum of $200,000) with no ongoing costs (rent / equity charge) for the equity provided.
These types of schemes are designed to help people that would not normally be able to buy a home, and on the website state that they “can help bridge the gap if your deposit and home loan aren’t quite enough to buy a new home” meaning that the banks would not ordinarily provide the finance needed.
The History – What Happened
First Home Partner was introduced in October 2021 as shared home ownership scheme to help aspiring first home buyers who can service a standard mortgage but don’t have a big enough deposit or don’t qualify for a big enough home loan to buy a place of their own.
The funding of $194 million was announced and with Kainga Ora offering up to 25% (to a maximum of $200,000) that means they had the potential to help with almost 1,000 if using the maximum.
It was introduced with two banks that were offering the finance (BNZ and Westpac) but they would not offer this option via mortgage advisers.
It was hard to find any promotion of this, and I expect that Kainga Ora had no budget for marketing.
SBS Bank had become the third bank to offer home loans in conjunction with First Home Partner and they recognised that mortgage advisers should have access to this too.
As mortgage advisers we started talking about this in our Facebook Group and created a guide that explained how First Home Partner worked.
Then Kiwibank started offering this too.
The Housing Minister (Megan Woods) announced that there were changes to the First Home Partner including making it available on existing homes (previously just new), increasing the income cap for a household from $130,000 to $150,000 and extending the buy back period from 15-years to 20-years.
Read the announcement HERE
At the time of the announcement there had been a total of 861 homes contracted with just 472 households in their homes. As a housing policy this would have been well below any expectation; however it was never really marketed and so most first home buyers were not aware of it at least up until January 2023 when some mortgage advisers started talking about it.
It was announced that the aim to increase this to 1,500 by June 2024 which was a bit odd as the allocated funding in place was not going to fund this number.
These changes were announced to be effective from 14th August.
Changes took effect from Monday 14th August.
Aa at Monday 14th August we were still waiting on Kainga Ora to advise what the criteria was for existing homes and this was provided on Thursday 17th
Kainga Ora announced that First Home Partner is fully subscribed, and therefore are not able to continue to approve any applications.
They have said that the demand meant they saw 1,245 applications in the 6-weeks from 14th August to 30th September (over 200 per week); whereas in the almost 2-years prior to this they had only seen 3,236 applications or about 30 per week on average.
It is not known if this will reopen.
Why Was First Home Partner So Popular?
It would be easy to think that First Home Partner was popular because it was a good program; however, it was popular because there were so few other options available for people and of course the Government provided a set amount of funding.
Looking at the other options:
The Reserve Bank basically killed the low deposit home loans with they introduced LVR rules.
There rules restrict banks from being able to offer home loans where there is less than 20% deposit and therefore it’s hard to get loans pre-approved from the banks which is a problem for first home buyers. There are exceptions to the LVR rules with the most relevant being for new builds and loans through the First Home Loans scheme.
New Builds – the last few years have seen significant delays and cost escalations with new builds and more recently a number of developers have either scaled back what they are doing or gone out of business. This has seen the banks take a more conservative approach and most want a larger deposit (15% is typical) and build in a cost escalation when testing the affordability which makes approvals harder especially now with higher interest rates and even higher test rates with the banks.
First Home Loans – is another option supported by Kainga Ora for first home buyers and allows eligible people to buy a first home with low deposits (from 5%) and is very popular; however the eligibility criteria makes it quite difficult (or impossible) for many people. This program has not been adopted by all banks and so in many cases the buyers are never told that it exists. For those people that do know and qualify they need to also meet the banks criteria for low deposit lending which is tougher than for those people that have a 20% deposit and that means the testing of affordability makes approvals harder too.
Therefore for many Kiwis who did not have access to help from family there were not really any other options if they wanted to buy a home, so when they heard about First Home Partner this was really the only way that they could see to buying a home.
Let’s Consider “The Business Approach“
If anything, First Home Partner was too generous – it offers up to 25% (max $200,000) with no ongoing costs (rent / equity charge) for the equity provided. Over the longer term as house prices increase Kainga Ora will make money as the home owners buy the remaining share.
This compares to many overseas options and the commercial shared home ownership schemes where there is an ongoing costs (rent / equity charge) for the equity provided as well as the profit generated as home owners buy the remaining share when house prices increase.
It appears that the Government are treating the $400m invested as a cost rather than as an investment that will give them a financial return.
If the aim was to help as many people as possible you would also need to question why they would provide up to 25% (max $200,000) when this seems excessive. The requirement is for the home owner to have 5% to put into the deposit, and therefore 15% would mean the buyer would have the 20% deposit required by the banks, and if the dollar amount was limited to ‘say’ $100,000 then they could have helped twice as many people; albeit to a lesser degree.
The other question needs to be how First Home Partner is funded, as there is an opportunity to structure this so that it could use commercial funding such as from KiwiSaver providers etc.
Stuart’s Opinion On What Should Happen
In my opinion there needs to be a review across the three main programmes for first home buyers being the First Home Grants, First Home Loans and First Home Partner. I think there is potential to redefine what each provide and with some redesigning they would be more targeted and more effective at helping Kiwis get into their own homes.
There is also a need to review the eligibility rules and make sure that they align across the programs.
A review should also look at the opportunity to educate potential first home buyers, and could have as the eligibility criteria that a person has to complete a money management course and could also include a requirement to have contributed an increased level of their income into their KiwiSaver to show that they can live within their means and save.
Here are some initial ideas regarding potential changes:
First Home Grant – in its current form the First Home Grant is just seen as “free money” and while a first home buyer is not going to turn it down it’s hard to see what it’s really for. My suggestion would be to have targeted grants within the First Home Grants program. These could include new builds, specific types of new builds the Government want to promote (apartments, townhouses), specific locations, eco-friendly or green homes, to assist people with disabilities and/or specific employment sectors such as teachers, doctors and nurses, armed forces etc.
First Home Loans – a major issue with this is that the rules mean a person is either eligible or not and that means a lot of Kiwis find this is not going to help at all. I believe that some of the rules need to be reviewed, and that the eligibility criteria (specifically income caps) could be adjusted to be more like a scaled approach using incomes and LVR’s such as:
|Income Cap (couple)||$150,000pa||From 5.0% Deposit|
|Income Cap (couple)||$125,000pa||From 5.0% Deposit|
|Income Cap (couple)||$150,000pa||From 7.5% Deposit|
|Income Cap (couple)||$175,000pa||From 10.0% Deposit|
|Income Cap (couple)||$200,000pa||From 12.5% Deposit|
There should also be an effort to get more banks and non-bank lenders onboard and to promote these programmes so that first home buyers know these exist. Unfortunately there are still a lot of Kiwis that get advice from family and their bank, and in many cases this means that they never get to hear about these programmes and therefore believe that home ownership is just not possible for them.
First Home Partner – the criteria should be aligned with the First Home Loan scheme which would mean that people would not need to use this option if the deposit was an issue, and instead First Home Partner would then be refocused to help people that cannot afford the full mortgage that they need to fund the home that would be suitable.
With a refocus on affordability rather than the deposit then a similar scaled approach using incomes would make sense too – such as:
|Income Cap (couple)||$150,000pa||25% (to max $200,000)|
|Income Cap (couple)||$75,000pa||25% (to max $200,000)|
|Income Cap (couple)||$100,000pa||20% (to max $150,000)|
|Income Cap (couple)||$125,000pa||15% (to max $100,000)|
|Income Cap (couple)||$150,000pa||10% (to max $75,000)|
|Income Cap (couple)||$175,000pa||5% (to max $50,000)|
|Income Cap (couple)||$200,000pa||From 12.5% Deposit|
This last section is the ideas of Stuart Wills.
These ideas have not been adopted by any political party or Government agency, but it would be great if they could at least look at and consider changes to make first home ownership within reach for more Kiwis.
Stuart is an experienced mortgage adviser with 25+ years in the industry.
Stuart operates Mortgage Managers with a small team in Hobsonville, Auckland and also set up the Kiwi First Home Buyers Group on Facebook over 10-years ago – a group which now has over 85,000 members and promotes discussion with first home buyers on a range of topics including First Home Partner.