Wellington, August 19, 2018
Pre-qualification for KiwiBuild homes opened on Monday, August 13, 2018, with Kiwibank swiftly announcing a new home loan catering to prospective buyers.
The pre-qualification process means people hoping to buy a KiwiBuild home can see if they qualify ahead of entering the ballot.
Buyers must meet certain requirements, including being a first-home buyer or “second-chancer, earning less than $120,000 for a single or $180,000.
They must also be a New Zealand permanent resident or citizen and intend to live in the home for at least three years.
Battle for the lenders
Prospective buyers must have pre-approval from a bank or other lenders and the banks have lost no time in trying to welcome these first home buyers onto their books.
Once KiwiBuild is running at full steam, it will be responsible for 12,000 homes being built every year, in addition to the roughly 30,000 newbuilds currently built by the private sector.
That represents a lucrative pool of 100,000 new buyers in the market for a mortgage.
Kiwibank’s Specific Home Loan
Kiwibank has even gone so far as to launch a specific home loan tailored to KiwiBuild buyers.
The bank will pre-approve customers for up to 90% of the value of a KiwiBuild home, meaning buyers will only need a 10% deposit instead of the 20% required by banks imposing the 80% Loan-to-value (LVR) restriction.
This would mean a deposit of $57,900 or $64,900 depending on the size of the house purchased.
The first KiwiBuild homes will be balloted in October. There will be at least 18 homes for sale, all in a Papakura development. They will cost $579,000 for a three bedroom home and $649,000 for a four bedroom home.
Other banks’ offers
The other major banks are not yet offering a specific KiwiBuild home loan, but all offer low deposit policies aimed at first home buyers.
BNZ and ASB currently offer home loans to first home buyers for 5% deposit.
ASB told Newsroom that they were awaiting final details on the KiwiBuild programme before confirming minimum deposit requirements.
Westpac will approve loans for buyers with 10% deposit.
New Zealand’s largest lender, ANZ, told Newsroom it would offer lending above the current 80% LVR ratio on a case-by-case basis.
$48.1 billion mortgage repayments
KiwiBuild represents an enormous potential market for banks, allowing them to lend to potential buyers currently locked-out of the market by housing unaffordability.
A borrower purchasing a $579,000 KiwiBuild with a 10% deposit can expect to pay roughly $517,798 in interest over the lifetime of the loan, assuming a term of 30 years and an interest rate of 5.25%. That is the average three-year fixed rate being offered by the four major banks.
Information on how many KiwiBuild houses will be offered at which price points is currently unavailable.
But if just half of the 100,000 KiwiBuild homes are sold for $579,000, this would represent roughly $25.8 billion in potential interest payments to banks, although it is unlikely the borrower would continue paying at the same rate for 30 years.
The other 50,000 homes would represent roughly $22.3 billion in interest assuming they are priced close to the $500,000 price cap.
Banks may be in line to pocket even more as it is unlikely the interest rates will remain at current record lows into the 2020s.
But the KiwiBuild homes could be a long time coming.
The first 18 will be sold shortly and currently only 430 are under construction with 1000 due to be completed by July 2019.
Thomas Coughlan is a Newsroom Reporter based in Wellington. Newsroom is an independent, New Zealand-based news and current affairs site, powered by the generosity of people who support its mission to produce fearless, independent and provocative journalism. Indian Newslink has published the above Report and Picture under a Special Agreement with www.newsroom.co.nz
Pre-qualification for KiwiBuild homes are now open
Photo for Newsroom by John Sefton