Government launches $400 million first-home buyer scheme: Here's how it works

Charities that assist lower income renting households become homeowners through shared ownership schemes will now be able to access a $400 million fund launched by the Government. 

Housing Minister Megan Woods unveiled the Government's Progressive Home Ownership scheme on Friday which aims to support low to median income families who are struggling to pull together a deposit, or pay a mortgage, into home ownership.

The first phase of the fund has signed up the Housing Foundation in Auckland, and Queenstown Lakes Community Housing Trust, to support the first 100 families. More phase one providers in other centres will be announced soon. 

Auckland and Queenstown were chosen first because both areas have significant housing affordability issues, a Government press release explained. 

"The fund will focus on areas where housing affordability is most severe, with a strong preference for new houses to build supply," Dr Woods said on Friday. 

"It will help up to 4000 families who could not otherwise afford home ownership. We expect to see the first group of families in their own homes by November this year."

The Government expects all of the $400 million to be paid back. 

What is progressive homeownership?

Progressive homeownership enables a family to partner with a charitable provider, such as the Housing Foundation, to help them become homeowners by sharing the financial burden. 

Types of progressive home ownership deals are already available in New Zealand, and those available to access the Government's fund are shared ownership, rent-to-buy, and leasehold. 

Shared ownership is where a household owns part of the home and a third party owns the rest. Over time, the household buys back the portion of the home from the third party.

Rent-to-buy is where the provider purchases the house outright and a household rents the home from the provider, sometimes at a cheaper price to help the household save a deposit. 

In other situations, the household would be charged the standard rent but the provider would set aside a portion of that rent as a deposit on behalf of the homeowner. The household may then be allowed to buy the house off the provider. 

Leasehold is where a provider sells a home to a household but retains ownership of the land. By excluding the land it reduces the deposit. In some cases, the home owners may be entitled to purchase the land from the provider at a later date. 

The Government is still designing a scheme that will be available directly to households. It's expected to be available in early 2021 and will be led by Kāinga Ora.

Who's eligible for the scheme?

To be eligible, you must be a New Zealand citizen or resident over the age of 18, and you cannot already own a property in New Zealand or overseas. 

Applicants must have a household income of less than $130,000 per year and they must be able to secure a commercial mortgage and have some amount of deposit. 

Applicants must be first-home buyers or 'second chancers' as defined in the eligibility criteria for KiwiBuild, someone who was a previous home owner but no longer owns a home. 

Does this sound familiar?

The Government allocated $400 million to support home ownership schemes when Labour's flagship KiwiBuild programme was reset in September 2019 - but only now has it been officially launched. 

The Government introducing a progressive homeownership fund is part of Labour's confidence and supply agreement with the Green Party. 

"We know that high rents make saving for a deposit almost impossible for many families," Green Party co-leader and housing spokesperson Marama Davidson said on Friday. 

"This fund means more low income families who have been locked out of the housing market will finally have a chance at owning their own home. We're proud to be part of a Government working to ensure everyone has the home they deserve."

The KiwiBuild programme had to be reset because the scheme did not live up to the promise of 100,000 houses in 10 years.

On top of progressive home ownership, the revamped scheme included changes to the requirements for a KiwiSaver HomeStart grant, or as it's now called the First Home Grant. 

The deposit requirement for a loan or grant was reduced from 10 percent to 5 percent.