"Cabinet has agreed to new criteria for the Welcome Home Loan, doubling the proportion of the national housing market accessible to people without a deposit under the scheme," Housing Minister Chris Carter says.
The Welcome Home Loan Scheme underwrites private lenders, such as banks and building societies, to give home loans to people on the margins of traditional mortgage criteria.
It was originally established to help a niche of households which research suggested could technically service a loan but were effectively locked out of the housing market because they lacked a sufficiently large deposit to meet lending requirements.
To date the scheme has helped about 1800 people, which is well below expectations. Carter says the scheme “needs a shot in the arm", hence these changes.
"The scheme is calibrated for the lower rungs of the housing market, but since it was designed the lower quartile price of residential properties has risen 55%. This has severely cramped the scheme's usefulness. The no-deposit component of it now enables access to just 11% of total house sales."
Changes include:
- Increasing the limit for lending with no deposit from $150,000 to $200,000
- Changing the minimum deposit required for lending over $200,000 from 5% of the total loan value to 15% of that portion of the loan, which is above the 100% lending limit.
These changes mean a household can borrow $200,000 without a deposit, and can borrow up to $280,000 in total under the scheme. But for anything borrowed over $200,000, a deposit must be paid. If a loan were sought for $250,000, then a deposit of $7,500 would be required, being 15% of $50,000. The deposit on a loan of this size is 40% smaller following Cabinet's decision.
Households can qualify to use the scheme if they consist of one or two people earning up to $85,000, or three or more people earning up to $120,000.
"Under the new criteria, a Welcome Home Loan should enable access to up to 22% of national house sales without a deposit, and up to 50% with a smaller deposit," Carter said.
The criteria changes to date will lift the total annual cost of the scheme to about $4.9m, which will be paid for from within Housing New Zealand's current budget allocation.
