About 12 months ago when the Reserve Bank introduced the loan-to-value ratio (LVR) restrictions, I wrote about how hard it would become for first-time buyers who did not have 20 per cent deposit or KiwiSaver funds to purchase their first home. The changes to both the LVR and debt servicing calculations did catch many bank borrowers by surprise when their loans were declined. Alternatively, they found out the bank would lend them far less than they are used to borrowing.
Although nothing has been formally announced by the Reserve Bank, there are plenty of whispers around to suggest that a review is underway, and we may see an easing of at least the LVR restrictions in the near future. My prediction is that by February or March next year, we will see an announcement in this regard. Housing statistics company CoreLogic and real estate agencies are certainly reporting that the market has slowed in both sales numbers and price rises. In fact, in some parts of Auckland we are seeing prices drop slightly. Days on the market have increased and auction clearance rates have dropped. Are we about to enter the buyer’s market phase?
The new government, under their KiwiBuild scheme, has pledged to build 100,000 new houses over the next 10 yrs. Half of these will be built in Auckland. This is a ten-fold increase in the number of affordable houses being built in Auckland each year, from 500 to 5,000. The stand-alone KiwiBuild homes in Auckland will be priced at $500,000-$600,000, with apartments and terraced houses under $500,000. Outside of Auckland, prices are likely to range from $300,000-$500,000.
KiwiBuild homes will only be sold to first home buyers. To avoid buyers reaping windfall gains, a condition of sale will require them to hand back any capital gain if sold on within five years.
The government is allocating a $2 billion fund to enable these homes to be built. These funds will be recycled to build more homes as they are sold to first home buyers. So, if you are an aspiring first home buyer, its looks as though there are changes on the horizon to help make it easier to get into your first home. If you are such a buyer, I would suggest that you start getting your own finances in order now so that you are ready to apply. You can do this by having your own financial situation looking as good as possible for a mortgage approval. Experience over 29 years in the finance industry has shown me that dealing with any government scheme has fish hooks. The current HomeStart program using KiwiSaver is complex and requires you to meet a number of criteria before you will get approval. If buying your first home is in your plans for 2018, act now and seek out advice on what you need to do to ensure you get approved first time around.
Grant Clifton, Countrywise Financial