Homestart grant, Kiwisaver, deposit, approvals – what does this all mean for first-home buyers?

Bank Finance

Changes brought in by the government as part of the KiwiBuild reset have included a lowering of the First Home Loan and Homestart grant requirements to only a five percent deposit down from ten percent previously. This is good news for first home buyers but what does it all mean?

There is a lot of jargon involved in a house purchase that can be foreign to first home buyers. Buzzwords such as pre-approval, approval, deposit, HomeStart, Kiwisaver to name a few. It is all the more confusing when the banks, real estate agents and solicitor use the word deposit to mean different things. We are here to guide you through this potentially tumultuous process in this article series outlining your path to home ownership. This article examines the first step in the first home buying process – bank finance.

The Bank

Firstly, to deposits, pre-approval and approval. Pre-approval is a process you should undertake when you decide you are ready to buy a house. It is a process where you must show evidence of your income and your intended deposit accumulated to the Bank before they will consider making a loan offer to you.

The deposit in the Bank’s sense can be comprised of several elements i.e. cash, gifts from parents, Kiwisaver, HomeStart grant etc. You do not have to pay this deposit to the Bank, but you need to provide evidence of the funds before the Bank will be prepared to lend. Banks usually require that you have 20% deposit of the lending they offer to you (called a minimum lending requirement).

Approval means the Bank also approves the house you are purchasing. You need a finance condition in any agreement for sale and purchase you sign, and the Bank needs a copy of this signed agreement as part of the approval process. More often than not the Banks are requiring registered valuations to be undertaken as part of the approval process, a cost that you will have to meet to potentially secure lending.

The First Home Loan

Where a first home buyer is struggling to meet the minimum lending requirement, they can rely on some assistance from the Housing New Zealand First Home Loan. The First Home Loan (previously the Welcome Home Loan) provided that Housing New Zealand would underwrite 10% of the minimum lending requirement, so a buyer only needed to show 10% deposit comprised of the elements above to be eligible secure lending from the Bank.

From 1 October 2019, Housing New Zealand will underwrite 15% of the minimum lending requirement, meaning evidence of only 5% of the deposit is required to be able to secure Bank lending. Our next article will examine other sources of potential funding that can assist you into your first home.