Are social housing and housing grants mutually exclusive?
The government’s decision to scrap the first home grant and redirect funds towards social housing initiatives has drawn a mixed reaction from the mortgage advisory industry.
Are social housing and housing grants mutually exclusive?
Last week housing minister Chris Bishop announced a “tough but fair decision” to end the government’s first home grant, reinvesting $140 million towards 1,500 new social housing places.
Social housing minister Tama Potaka said the new investment underlined the Government’s commitment to “housing New Zealanders in need in a fiscally sustainable way.”
“The social housing waitlist is over 25,000 applicants and too many Kiwi families are living in emergency housing motels or sleeping on relatives’ couches while they wait to move into warm, dry, stable housing,” Potaka said.
However, FAMNZ managing director Peter White (pictured above left) said the industry body was “disappointed” to see the end of the first home grant, as “any measure that assists people to buy a home is positive both for the consumer and the economy”.
“While we commend any move to increase social housing, the two issues (social housing and first home grant) are unrelated. Both are required and both benefit the community and the economy,” White said.
“There needs to be a balanced approach, and we would call on the government to leave the first home grant in place while still tackling the social housing issue.”
Andrew Kay (pictured above right), mortgage adviser at Simply Finance, said he was surprised by the way the announcement was made.
“There was no chatter about it and we mortgage advisers weren’t given any heads up beforehand.”
Consequentially, Kay had the “phone ringing hot for a few hours” from clients who were either in the middle of the process or were just about to start.
“It was good to hear all applications submitted up to 1pm were still going to be honoured,” he said.
Were borrowers using the first home grant?
Aside from the need for social housing, part of the justification for scrapping the first home grant was that it had a small intake of participants.
Kay agreed that it wasn’t really helping his first homebuyer clients - all but one could have still bought their property without the grant.
“Knowing the $60 million will go into social housing is probably better use of the funds to help the wider good when we hear there is a massive wait list for housing,” Kay said.
The main problem, according to Kay, was the grant’s eligibility criteria had reached “its end of usefulness a while ago”.
Out of around 30 first homebuyer Simply Finance clients with grants, only seven qualified.
“Considering the price caps and income caps, it really wasn’t achieving what it was meant to achieve,” he said.
Kay said it was “always quite hard” telling prospective clients who were excited about the thought of getting free money, getting told that their joint income excluded them even though they were both just on the median wage of $70,000-$75,000.
“A common misconception was that overtime was included in their end of year tax. So while they thought they were under the cap based on their base salary when pay slips came in or IR3 with all their overtime included, it kicked them out,” he said.
“Or the location they were looking at didn’t fall into one of the box categories or main centres and therefore fell into the “all other areas” which came with a cap of $400,000.”
White said while the government was right to suggest the grant represents a smaller percentage of the deposit than it did when the scheme was first established, any assistance a first home buyer receives is beneficial.
“Removing the first home grant will add to the current cost-of-living pressures, higher home prices and higher interest rate pressures, and for some buyers the grant is the difference between homeownership or not,” he said.
Advice to borrowers
In terms of what advisers should inform their clients, Kay said it’s essential to tell them not to panic.
“Don’t stress. There are always other plans,” he said. “As mortgage advisers, it is our job and experience gained to navigate the pathways to homeownership.
“For example, one bank in particular is providing up to $5,000 for first home buyers regardless of the loan amount borrowed. Typically, banks offer on average 0.80-0.90% of the loan amount towards a cashback.”
