KIM FULTON reports in the first part of our five-week investigation into getting a foothold on the property ladder.
One property expert says it's a tale of two cities for first-home buyers. Property Institute chief executive Ashley Church said the biggest obstacle in Auckland was the clampdown on loan to value ratios. It essentially requires buyers to come up with a 20 per cent deposit - in a city where the average price was fast approaching $1m.
But the rule also applies in other parts of the country where properties are of a much lower value overall.
"Relatively and proportionately, it's easier in other parts of the country," Church says. "It's almost going to be the impossible dream in Auckland until such a time as that particular policy is done away with and that could be some years because the property market's showing no signs of abating in terms of house price inflation."
KiwiSaver withdrawals help first-time buyers get a deposit together but there remains a big gap between the value of a buyer's KiwiSaver funds and the amount they would have to front up with to buy a property in Auckland.
"Again, easier in other parts where houses are more affordable. Very, very difficult in Auckland," Church says. "On every scale ... the problems are going to be primarily for young people in Auckland looking to get into that first home."
He says for those on good incomes who could afford large mortgages, the only obstacle is the deposit.
"Even a couple that are on good incomes -- when you're talking about an average house price in Auckland of a million dollars, that's a big first obstacle."
Church doubts the IRD's new capital gains tax will impact on house price inflation as property investors don't sell quickly.
"It's a good policy in terms of tax efficiency for the country but I don't think it's going to be a particularly effective tool when it comes to bringing house prices down."
Kiwis are changing the way they go about buying their first property.
Loan Market mortgage broker Bruce Patten says he has seen a lot of parents helping their children either with home deposits or as guarantors to get them into the market.
Friends and siblings were pairing up to buy houses as they accepted they could get into the market together and go their own way later.
Patten encourages first-home buyers whose banks can't offer them a loan to try other providers. Some banks are tight on their borrowing capacity at the moment because of Reserve Bank restrictions.
Banks are required to restrict new residential mortgage lending at loan to value ratios of over 80 per cent to no more than 10 per cent of the dollar value of their new residential mortgage lending.
ASB has less capacity than some other banks at the moment because it is an Auckland-heavy lender, Patten says. ANZ, Westpac and BNZ seemed to have a bit more capacity than ASB and Kiwibank. Smaller lenders were also keen to be involved but had smaller market share so less capacity.
The more lending they did under 80 per cent the more they could do over 80 per cent. That makes it easier for bigger banks to control their capacity. "Just because your bank may not have available funds to do a loan for you right now doesn't mean that another bank won't."
He says banks are now at a place where they are aware of what their capacities are, making it easier for brokers to work through the process of getting a personal loan.
CONSIDER ALL OPTIONS
Mortgage brokers are encouraging first home buyers not to give up hope and instead consider creative solutions to beat the restrictions.
Many first home buyers are unaware they can withdraw their KiwiSaver savings to put towards their first home -- regardless of how much they earn, or a property's purchase price, Patten says.
For buyers not enrolled in KiwiSaver, he encourages them to join while the lending restrictions are in place. "By the time [the restrictions] come off you'll have money to put towards a purchase."
WELCOME HOME LOANS
Solo borrowers who earn $80,000 or less before tax or joint borrowers who earn a combined $120,000 before tax might be eligible for a Welcome Home Loan with only a 10 per cent deposit. KiwiSaver savings can be used towards the deposit, as can money gifted from a relative.
Regional price caps determine the maximum loan amount a buyer can borrow. Although banks have started pushing the option, many applications will take time to approve as borrowers' financial circumstances are assessed, Patten says.
Real Estate Institute president Colleen Milne says: "The Welcome Home Loan changes have been a great opportunity for couples to receive up to $10,000 on an existing home and $20,000 on a new property if they have invested for five years."
BANK OF MUM AND DAD
Parents can gift money to their children, act as guarantors, or get loans in their names and lend it to their children, Patten says, adding that it's less risky for parents to borrow the money themselves than act as a guarantor, as there's no chance of them losing their house so long as they can afford the repayment.
Milne adds: "Parents are still a great option to provide that top-up when required."
These lenders aren't restricted to Reserve Bank rules and can offer buyers a loan to increase their deposit with a standard bank, or a home loan for those with less than 20 per cent deposit.
Patten says non-bank lenders are limited to how much money they have available for lending, so this option is "not for everybody".
THINK OUTSIDE THE SQUARE
Look in a cheaper area than you would have previously considered, O'Sullivan says. Don't restrict yourself by area or property type.
In Auckland, for example, demand is increasing for outer areas such as Papakura despite the long commute to the CBD.
When searching online consider properties priced up to $25,000 more than you'd prefer to pay. See what comes up in the price point you actually have a 20 per cent deposit for, O'Sullivan says.
Milne says: "With the LVR changes being introduced in October and also the social housing schemes across the country, first-home buyers should do their homework and understand all options that are open to them for financing."
BACK TO SCHOOL
Banks are offering seminars throughout the country to educate first home buyers. Local mortgage brokers can also assess clients on a case by case basis to work out lending solutions.
GIVE IT A TRY
Just because you don't have a 20 per cent deposit doesn't automatically rule you out of the running. Despite the restrictions, banks are still allowed to issue loans to borrowers with low equity, with some lending up to 95 per cent. So it's definitely worth making an approach. And as banks become more comfortable with the restrictions they're likely to free up their lending practices even more to low deposit first home buyers.
DON'T GIVE UP
The restrictions won't be in place forever so don't stop saving, Patten says. "Don't go spending your money on a car because you don't think you can buy a house. Keep saving."