Owning its section excluded the first builder from government aid

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James Li is building his first house, but he is not eligible for a first house grant because he already owns the section he is building on.

He bought the Wainuiomata section in Lower Hutt for $340,000 in April last year when the market was booming. At the time, land, especially affordable land, was hard to come by, he says.

“This was before changes to the First Home Grant price caps, so I accepted that I would miss out because the cost of land and construction exceeded the $750,000 cap for Wellington.

“Then the government saw the sense and changed the price caps which increased Wellington’s cap to $925,000 and I celebrated as I thought my first home build would now be eligible for a grant .”

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But it turns out that’s not the case. When Li applied for a grant, he was told that the fact that he owned his land meant he couldn’t get one.

He says his scenario is exactly the same as someone buying a new build from the blueprints of their first home – except they won’t own their section until construction is complete when he already has his.

“So they get a $10,000 contribution for their construction, and I don’t. I asked Kāinga Ora, and wrote to the Minister of Housing, to find out why this situation exists, and no one seems able to tell me.

Although he continues to build as he has saved, saved and received help from his mother, he does not think the situation is right.

James Li bought a section in Wainuiomata, which has long been a popular suburb for first-time home buyers.

Ross Giblin

James Li bought a section in Wainuiomata, which has long been a popular suburb for first-time home buyers.

He comes under the income cap and works more than 60 hours a week at two jobs to pay for construction, so the subsidy would be really helpful, he says.

“For me, it’s amazing that people who own land are not eligible. After all, this is a first grant, not a first land grant. »

Jason Lovell, Kāinga Ora Home Ownership Product Manager, says that to be eligible for a first home grant or loan, applicants must not currently own any property or land, although this does not does not include ownership of Maori land.

“It’s about making sure the products support first-time home buyers. In this case, an existing property owner is not considered to be in the same financial position as a first-time home buyer.

“The First Home Grant may be used to help purchase land to build on, if the eligible applicant has a First Home Grant pre-approval in place prior to settlement.”

Kāinga Ora runs a range of home ownership products, which are designed to overcome the deposit barrier and make it easier to buy their first home, he says.

These include the First Home Grant, First Home Loan and First Home Partner, a co-ownership program that recently expanded to include SBS Bank as a third banking partner.

In fiscal year 2020/21, over 10,000 homes were purchased with one or more of the home ownership products.

This year’s budget introduced changes to the first-home buyer assistance provided, with the removal of price caps for first-time home loans and the lifting of first-home grants.

Housing Minister Megan Woods said the changes will help thousands more first-time home buyers, and funding will be available for around 7,000 extra first-home grants and 2,500 extra first-home loans per year .

Finance Minister Grant Robertson and Housing Minister Megan Woods on their way to the presentation of this year's budget, which included more help for first-time home buyers.

Ross Giblin / Stuff

Finance Minister Grant Robertson and Housing Minister Megan Woods on their way to the presentation of this year’s budget, which included more help for first-time home buyers.

But Li’s situation is just one example of the barriers preventing more first-time homebuyers from accessing available government assistance.

Another hurdle is the aid income cap – people must earn less than $95,000 as a single person or $150,000 as a couple, or a single person with dependents, to qualify. Mortgage brokers say income caps can mean it’s hard for many people to take advantage of the change.

AdviceHQ director David Green says the changes open up support to more people and most first-time homebuyers need all the help they can get, but they’re not a game-changer.

Individual circumstances vary widely and can make a difference when trying to access support, including tapping into KiwiSaver to buy a home, he says.

“Although Li’s situation is unusual, similar issues are not unheard of. A client of mine has been offered a quarter of a piece of land, but is unable to tap into his KiwiSaver to build on it, for example.

The rules are black and white in that sense, and not all the subtleties come into the equation, he says.

“In Li’s case, he might be looking at taking some of his land out to help with construction, but with a lot of banks, any mention of construction, and they want to go the construction loan route, and that makes the more difficult things.”

Mortgages Online director Hamish Patel says he’s heard of aspiring homeowners in similar situations to Li’s, but hasn’t met any himself.

Mortgages Online director Hamish Patel says many first-time home buyers barely break the income cap.

Provided/Provided

Mortgages Online director Hamish Patel says many first-time home buyers barely break the income cap.

What he’s seeing are many first-time home buyers, especially couples, who are slightly above the income cap, he says.

“Two years ago, a lot more people went under the cap, but it’s amazing how many people have had pay raises in the last 12 months and have flipped over.”

Despite this, he’s surprised how few people have contacted him over recent changes to the first home loan and first home grant. Many first-time home buyers may have just given up, he says.

“They may have been told they didn’t qualify in the past, and now that the rules have changed, they don’t realize their situation may be different. But there’s also unease there, with people focusing on how big the price drop will be. »

Mortgage Supply Company director David Windler says the changes make little difference in Auckland because prices are so high and criteria don’t match the market, although they are more useful in areas where criteria are better matched .

But the bigger issue for first-time home buyers is the ongoing credit crunch around financing, he says.

“It is exceptionally difficult to secure it, if not through loan-to-value ratio (LVR) exemption for new construction, or access to a first home loan. Without one of them in play, these are slim choices.

The reason is that for banks to lend at 90% they need to be sure they can afford it, and with mortgages down 34% this year there is a commensurate decline in the ability to lend over 80%.

Windler says new builds don’t look very attractive to many right now, due to cost increases, delays and stories of developers going to the wall, so the Reserve Bank should consider easing LVRs for first time home buyers.

Advisors say the Reserve Bank, led by Governor Adrian Orr, should consider easing loan-to-value ratios for first-time home buyers.

Robert Kitchin / Stuff

Advisors say the Reserve Bank, led by Governor Adrian Orr, should consider easing loan-to-value ratios for first-time home buyers.

“If they relax them, the banks will overlay them with their own policies. They’re not going to suddenly start throwing money at anyone who wants it.

When it comes to government assistance, the caps should be removed entirely because the metrics never hit the target, he says.

“Why bother trying to filter it? Just help all first-time home buyers. It should be ‘here’s your purse and good luck’, and the rest will depend on each individual’s situation and criteria of loan from his bank.

Unfortunately for Li, he may have missed the mark as it would have been better to apply for the First Home Grant to settle the land when he bought it, he adds.

“That doesn’t seem fair, because a lot isn’t a house, because you don’t own a house until you can get into it.”

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