The government’s plan involves a type of mortgage insurance scheme for those on incomes up to $50,000 a year or up to $100,000 per household.
Those who qualify can buy a house costing up to $100,000 without a deposit. Those with a 5% deposit can buy a house costing up to $200,000. A point of difference to other similar schemes is that the 5% may be gifted rather than the applicant having had to prove a savings record.
Normal credit criteria such as a good credit record and sufficient income to make the mortgage payments will also apply.
Initially, the scheme will be run as a two-year pilot program through the government-owned Kiwibank, although it may be extended to other lenders. The government is budgeting $5.3 million for the scheme, which will begin in September, and Kiwibank estimates it may cover 1,800 home loans over the two-year period.
Graeme Woodley, president of the Real Estate Institute, who had vigorously opposed the introduction a a scheme similar to Australia’s where the government contributed lump sums towards a housing deposit, says he "applauds" the scheme.
"It will give some people the opportunity of getting into their first home" but it is unlikely to have the distorting impact on the housing market that an Australian-type scheme would have, he says.
The Australian scheme has been criticised as having added fuel to the already over-heated Australian housing market.
New Zealand Mortgage Brokers Association chairman Brian Berry agrees that it shouldn’t have a distorting impact on the housing market and approves the sentiment of making it easier for first-home-buyers, but still sees the scheme as an anti-competitive move.
"The government’s making it not a level playing field for the lenders in the market or for the lenders’ mortgage insurance companies. I don’t think the government should be getting involved," Berry says.
While it shouldn’t have much impact where houses under $100,000 are concerned, it probably will have some impact on the market for houses costing between $100,000 and $200,000. "That’s quite an aggressive market" and a number of players in that price range will lend with only a 5% deposit.
Kiwibank currently doesn’t deal with mortgage brokers. Berry says it’s hard to see the government extending the scheme to all banks.
Economists agree the scheme shouldn’t have much impact economically. "I don’t think it will be that material," says John McDermott, chief economist at National Bank.
With the no deposit part of the scheme, "you’re not talking about major urban centres. It’s social policy. It sounds like a nice thing to do for some people, but it’s very small scale."
Darren Gibbs, senior economist at Deutsche Bank agrees: he points out that the total mortgage market is worth about $60 billion.
"It’s clearly targeted at people at the lower end of the income scale. I don’t think it creates any particular distortions."
