Budget 2005: Scheme gives $5000 leg-up for first time home buyers

Michael Cullen's Budget emphasizes saving. Picture / Mark Mitchell

About one in every eight young people may receive a Government subsidy of up to $5000 each to buy their first homes under the new KiwiSaver scheme.

The scheme will give first-home buyers $1000 for each year they have saved money in the scheme, up to a maximum of $5000.

Couples will be able to combine their savings for a total Government top-up of $10,000.

But the scheme will be limited to people with combined household incomes below about $100,000 who are buying homes in the lowest-quarter price bracket of all house sales in their regions.

At present, the lowest-quarter price limits range from less than $90,000 in small towns, up to $114,500 in Gisborne, $159,000 in Lower Hutt, $235,400 in Christchurch, $377,900 in Wellington and $325,000 in Auckland City.

The Government estimates that about 3000 households a year will take up the subsidies.

That is one-eighth of the 24,000 people who will pass the age of 33 each year after the scheme becomes fully operational in 2010 - a rough estimate of the number of potential first-home buyers.

The scheme is far more restrictive than Australia's first-home owners' grant, which gives A$7000 ($7470) to every buyer, so the local version is expected to avoid the Australian scheme's inflationary impact on house prices.

Real Estate Institute president Howard Morley welcomed the scheme, but cautioned against overestimating its effect.

"The total number of houses sold last year was 120,000," he said.

"Assistance with 3000 is welcome, but it's not going to have a major impact on the real estate market. It's not going to drive prices up."

Auckland Property Investors Association president Andrew King said any slight upward effect on house prices would be more than offset by the dampening effect of another announcement in the Budget - spending an extra $134 million a year on new state housing.

The New Zealand Institute, which had proposed a $4 billion scheme to boost savings, said the Budget initiative was "a start", even though it was costed at just $35 million a year for the KiwiSaver subsidies plus $22 million a year for an expanded mortgage guarantee scheme.

"It's going to constrain or reduce the decline in home ownership, and has the potential of reversing it," said the think-tank's director, David Skilling.

A spokesman for Housing Minister Steve Maharey said the income limits for the Government subsidies had not been decided and might be linked to regional house prices.

The Budget has also raised the income limits for the mortgage guarantee scheme, which encourages banks to lend to low-income earners with no or minimal deposits.

The income limit for one or two borrowers in a household rises from $65,000 to $85,000, and for three or more borrowers from $100,000 to $120,000.

The maximum mortgage under the scheme remains $280,000.

How it works

* First, you have to save at least 4 per cent of your income in your KiwiSaver account for a minimum of three years.

* You can then use all the money in the account for a deposit on your first home, except for the $1000 the Government put in when you started (that has to stay in until you reach 65).

* The Government will give you a subsidy towards that first-home deposit of $1000 for every year you have saved in the scheme, up to a maximum of $5000.

* But you will only get the subsidy if you and your partner earn less than about $100,000 a year combined, and if you are buying a house in the lowest-quarter price bracket of house sales in your area.