Govt ups home loan size

JONATHAN DOW and NZPA
First home buyers can now borrow $200,000 without a deposit under the Government's Welcome Home Loan scheme, Housing Minister Chris Carter said yesterday.
He announced the Government was widening the scheme to help first home buyers who could service a mortgage but had difficulty raising a deposit.
A smaller deposit will also be required for a loan over $200,000.
Under the old scheme a $215,000 house - now slightly more than the lowest quartile (average price of the cheapest 25 percent of houses) in Hastings - would have required a $10,750 deposit. Under the new criteria the deposit is reduced to $2250.
The scheme has provided 36 loans to people in the Hawke's Bay-East Cape area since July last year but because of rises in house prices Mr Carter said it now needed "a shot in the arm".
Under the initial criteria, home buyers were able to borrow $150,000 with no deposit but Mr Carter said that enabled access to only 11 percent of total house sales.
Since the scheme was designed, houses in the lowest quartile price had risen 55 percent.
In May the lowest quartile house price in Napier was $255,000 and $213,000 in Hastings.
Wairoa and Central Hawke's Bay are among the 42 districts with lower quartile house prices below the $200,000 no-deposit limit.
Increasing the amount people could borrow without having a deposit "should enable access to up to 22 percent of national house sales without a deposit, and up to 50 percent with a smaller deposit," Mr Carter said.
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.
The scheme underwrites private lenders, such as banks and building societies, to give home loans to people on the margins of traditional mortgage criteria.
The expanded scheme will cost the taxpayer about $4.9 million a year and will come into effect on September 8. He said the scheme's criteria, including the top lending limit of $280,000, would remain "under review" throughout the year while the Government considered a new shared equity scheme.
Such schemes are popular in Britain. Shared equity schemes involve the Government or private partners stumping up part of the equity - often around 30 percent - for a deposit that is repaid when the house increases in value or is sold. No decisions have been made on this yet.
Commenting on the scheme's expansion, National housing spokesman Phil Heatley said his party was "absolutely supportive" of New Zealanders' home ownership ambitions but was also cautious about encouraging first home buyers to take on even bigger debts.
"Essentially that's what this programme does, allows bigger loans than would otherwise be possible. Now they're expanding it to a larger market with greater borrowing potential. A responsible government should always be cautious about encouraging people further into the debt trap," Mr Heatley said.