ANALYSIS: The Budget contained great news for first home buyers, with the Government upping the price caps for those purchasing through First Home Grant scheme and removing them altogether for the First Home Loan.
The new price caps remain frustratingly complex – the table now fills almost 2 A4 pages – but they also take into account the changes in the housing market.
The new price cap for existing properties and new builds in Auckland rises to $875,000. In Wellington, new builds now have a price cap of $925,000, reflecting, in my opinion, how difficult it is to get land to build on in the capital, while the maximum price for an existing house is $750,000, which reflects the price comparison between the two cities.
Interestingly, the biggest winner seems to be the Thames-Coromandel District, with an Auckland-matching maximum existing house price of $875,000 and a Wellington-matching maximum new build house price of $925,000.
The New House Price Caps
|Location||Existing properties ($)||New properties ($)|
|Hamilton, Waipā, Waikato||650,000||725,000|
|Tauranga, Western Bay of Plenty||800,000||875,000|
|Central Hawke’s Bay||500,000||500,000|
|Christchurch Urban Area (Waimakariri, Christchurch, Selwyn)||550,000||750,000|
The changes are refreshing given that previous lifts to the caps haven’t adequately reflected the post-pandemic house price surge. The price caps have always, allegedly, been based on lower quartile sales data but this is the first adjustment in a while that seems to truly reflect what we’ve seen in the market.
For those who are looking to make use of the First Home Grant or the First Home Loan – and I suggest all first home buyers take a fresh look at the new rules to see if they qualify – it may be time to review what developers are doing in your area. Auckland developers, for example, were struggling to build a house for under the previous price cap and may now have a number of developments that are possible under the First Home Loan. It’s worth remembering that the First Home Loan is able to be used to purchase apartments too. First home buyers who don’t mind living in apartments could find some good purchases available if they meet the income cap.
Although the price caps for the First Home Loan have been removed, the hurdle for first home buyers may still be whether or not their income is enough. One small change seems to have been made to the income threshold for the First Home Loan (there is no income cap for the Grant) where one person still may earn a maximum of $95,000 in the previous 12 months and a couple may earn up to $150,000. But a new line seems to have been added where one person with any number of dependents can now earn up to $150,000 which is a remarkable change and opens up good possibilities for single parents, even those with reasonable incomes.
An annual income of $150,000 does, at most banks, allow you to borrow up to around the same as the top price caps of the First Home Grant ($925,000), potentially even a little more but applicants looking for that much lending would need to submit a squeaky clean application showing good savings and absolutely minimal secondary debt such as credit cards and hire purchases. And they may want to submit an application quickly as banks may look to adjust their servicing rates – the rate that they stress test mortgage affordability at – up in line with interest rate movements.
The additional benefit is that those living in more affordable cities could, in theory, purchase a house up around the $900,000 price range using the First Home Loan. This, like the rules in the First Home Partner Scheme, are going to significantly benefit first home buyers in the smaller towns.
All in all, this was a bright week for a lot of first home buyers who were struggling with their deposit to get into the market. Buyers across the country who have been limiting their spending in the past 3 months may well be at the front of the queue to purchase houses that were previously, frustratingly, just above the First Home Loan price cap with the added bonus that they may some First Home Grant money to add to their deposit.
– Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.