Owning his section ruled first time builder out of Government help – Stuff
James Li is building his first home, but he is not eligible for a First Home Grant because he already owns the section he is building on.
He bought the section in Wainuiomata in Lower Hutt for $340,000 in April last year, when the market was booming. At the time land, particularly affordable land, was hard to find, he says.
“It was before the changes to the First Home Grant price caps, so I accepted that I’d miss out because the cost of the land and the build was over the $750,000 new build cap for Wellington.
“Then the Government saw sense and changed the price caps, which increased the Wellington cap to $925,000, and I celebrated as I thought my first home build would now qualify for a grant.”
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But it turns out that is not the case. When Li applied for a grant, he was told the fact he owns his land means he can not get one.
He says his scenario is exactly the same as someone who is buying a new build off the plans for their first home – except they will not own their section until the build is completed while he already owns his.
“So they receive a $10,000 contribution to their build and I don’t. I’ve asked Kāinga Ora, and written to the housing minister, to find why this situation exists, and no-one seems able to tell me.”
While he is continuing with his build as he has scrimped, saved and received some assistance from his mother, he does not think the situation is fair.
He comes in under the income cap, and is working over 60 hours a week at two jobs to afford the build, so the grant would really help, he says.
“To me, it is mind-boggling how people who own one piece of land would not be eligible. After all, this is a first-home grant, not a first land grant.”
Kāinga Ora manager homeownership products Jason Lovell says that to be eligible for a First Home Grant or First Home Loan, applicants must not currently own property or land, although this does not include ownership of Māori land.
“This is to ensure the products support first-home buyers. In this instance, an existing land owner is not considered to be in the same financial position as a first-home buyer.
“The First Home Grant can be used to help purchase land to build on, if the eligible applicant has a First Home Grant pre-approval in place before settlement.”
Kāinga Ora administers a range of homeownership products, which are designed to overcome the deposit barrier, and make it easier for people to purchase their first home, he says.
These include the First Home Grant, the First Home Loan, and First Home Partner, a shared ownership scheme which recently expanded to include SBS Bank as its third bank partner.
During the 2020/21 financial year more than 10,000 homes were purchased with one or more of the home ownership products.
This year’s Budget featured changes to the first home buyer assistance provided, with the price caps removed for First Home Loans, and lifted on First Home Grants.
Housing Minister Megan Woods says the changes will help thousands more first-home buyers, and funding will be available for an estimated 7000 additional First Home Grants and 2500 extra First Home Loans a year.
But Li’s situation is just one example of the barriers that are preventing more first-home buyers from accessing the government assistance available.
Another barrier is the income cap on the assistance – 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 the income caps may mean it’s hard for many people to make use of the change.
AdviceHQ director David Green says the changes do open assistance up to more people, and most first-home buyers need all the help they can get, but they are not a game changer.
Individual circumstances differ widely and can make a difference when trying to access assistance, including drawing down KiwiSaver to buy a home, he says.
“While Li’s situation is unusual, similar issues are not unheard of. One of my clients has been gifted a quarter share of a piece of land, but is not able to draw down their KiwiSaver to build on it, for example.”
The rules are black and white in that sense, and any subtleties do not come into the equation, he says.
“In Li’s case, he could look at withdrawing some equity on his land to help with the build, but with many banks any mention of construction, and they want to go down the construction loan route, and that makes things more difficult.”
Mortgages Online director Hamish Patel says he has heard of aspiring homeowners in situations similar to that of Li’s, but has not encountered one himself.
What he is seeing are lots of first-home buyers, particularly couples, who are just over the income cap, he says.
“Two years ago, many more people came in under the cap, but it is amazing how many people have had pay rises over the last 12 months, and have tipped over.”
Despite this, he is surprised by the lack of people who have contacted him following the recent First Home Loan and First Home Grant changes. It may be that many first-home buyers have just given up, he says.
“They may have been told they didn’t qualify in the past, and now the rules have now changed, they don’t realise their situation may be different. But there is also malaise out there, with people focused on how far prices might drop.”
Mortgage Supply Company director David Windler says the changes make little difference in Auckland as prices are so high and the criteria is out of whack with the market, although they are more help in regions where the criteria fits better.
But the biggest problem for first-home buyers is the credit tightening going on around funding, he says.
“It is exceptionally difficult to secure it, unless it is via the loan-to-value ratio (LVR) exemption for new builds, or access to a first home loan. Without one of these at play, it is slim pickings.”
The reason is that for banks to lend at 90% they have to be confident they can afford it, and with mortgage lending down 34% this year, there is a proportionate drop in the ability to lend at above 80%.
Windler says new builds don’t look very attractive to many right now, because of cost increases, delays and tales of developers going to the wall, so the Reserve Bank should look at relaxing LVRs for first-home buyers.
“If they do relax them, banks will overlay them with their own policies. They are not going to suddenly start throwing around money at everyone who wants it.”
When it comes to government assistance, the caps should be removed entirely because the settings have never hit the mark, he says.
“Why bother trying to filter it? Just help all first-home buyers. It should be a case of ‘here’s your grant, and good luck’, and the rest will depend on an individual’s situation, and their bank’s lending criteria.”
Unfortunately for Li, he may have missed the boat as it would have been best to apply for the First Home Grant to settle the land when he bought it, he adds.
“It doesn’t seem fair though as a piece of land is not a home, because you don’t own a home until you can walk into it.”
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