First-home buyers use parents as guarantors
MICHAEL DALY AND DEIDRE MUSSEN
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Parents wanting to help their children into first homes are being warned to be careful and seek independent advice before making any commitments.
An ANZ spokesman said the number of mums and dads wanting to know how they could help their children into their own home had surged in the past 18 months.
The parents' queries were in response to rising prices, particularly in Auckland and Christchurch. Reserve Bank-imposed lending limits were also a factor.
"Seeking help from family members can be a tricky area if family circumstances change," the spokesman said.
"We emphasise that it's important for each family to seek independent professional advice beforehand."
Figures out yesterday from Quotable Value show that in Auckland, the country's biggest property market, house prices rose 12.3 per cent in the past year and are up 31.4 per cent since the previous market peak of late 2007.
The average value in the Auckland area rose to more than $718,000.
In Christchurch city prices rose an annual 7 per cent and are up 21.1 per cent since the 2007 peak, with an average price of nearly $460,000.
Wellington prices are up just 1.8 per cent over the year, but the average is still nearly $453,000.
Reserve Bank rules imposed since last October mean only 10 per cent of new residential mortgages can be for more than 80 per cent of a house's value. In the months before the rules came into force, high loan-to-value mortgages accounted for about 30 per cent of new mortgage lending.
In the capital, QV valuer Kerry Buckeridge said some first-home buyers were finding ways around the mortgage lending cap, for instance by getting parental guarantees.
Wellington mortgage broker Craig Pope agreed, saying first-home buyers were forced to be "creative" about meeting bank criteria to get a mortgage.
About one in 10 of his clients used family as guarantors for their mortgages, double the number relying on that help before the Reserve Bank introduced the tougher loan-to-value ratios.
But the biggest change had been increasing numbers of people using KiwiSaver to augment their deposit – about 60 per cent.
KiwiSaver has two features to help people buying their first home, including its deposit subsidy and savings withdrawal schemes. Under the deposit subsidy, people can withdraw up to $5000 if they have been in KiwiSaver for more than three years.
BNZ head of wealth and private bank Donna Nicolof said slightly more than 20 per cent of withdrawals from the BNZ KiwiSaver Scheme in the quarter to the end of May were to buy a first home.
The number had increased as more people met the three-year threshold to qualify for the first-home withdrawal, she said.
"Having those additional funds available can make a huge difference when it comes to purchasing a house," Nicolof said.
"As always the earlier you start saving, the better."
Statistics from Housing New Zealand, which manages the subsidy scheme, show $23.3 million was paid out in 5862 subsidies to first-home buyers in the year to June, up from $17.4m in 4603 subsidies to year before, and $9.46m in 2820 subsidies the year before that.
QV Christchurch valuer Daryl Taggart said the Reserve Bank's mortgage restrictions had made it more of a struggle for some people to get into first homes. They had needed to look for alternative ways to raise the money.
In some cases, parents and other family members had been in a position to help out, as their equity in their homes had increased with rising prices.
"There are some cases where we've heard of deposits being offered by a family member, but usually it's a guarantee over the deposit or the loan," Taggart said.
The use of KiwiSaver funds to help with deposits was common.
The requirement for most new borrowers to have a 20 per cent deposit had made buyers more aware of their limits.
"Before that people were going to auctions and another $5000 to $10,000 was not such an issue."
Simon Frost, New Zealand manager for Mike Pero Mortgages, said parental guarantees and KiwiSaver funds had become important "but the message is you don't need to use those two sources to get a 20 per cent deposit".
There were opportunities, including through the banks, to borrow up to about 90 per cent of the value of a home.
"It depends on the customer profile, but if you have a 10 per cent deposit there are products out there that may suit," Frost said.
The market for high loan-to-value ratio mortgages had shrunk because of a misconception that for first-home buyers it was not worth looking without a 20 per cent deposit.
Real Estate Institute chief executive Helen O'Sullivan said first-home buyers calling on all the resources they could find to get together a deposit were getting some help from a decline in house sales across the country, including in Auckland.
First-home buyers who needed time to get their "ducks in a row" were at a disadvantage if they were up against cash buyers, she said.
"But as the market slows down a little bit and there's a little bit less competition you might have a better chance of getting a deal over the line."
WHAT CAN YOU BUY WHERE . . .
Average house prices in the wider Wellington region at June 2014:
Wellington - $535,962
Hutt Valley - $372,998
Upper Hutt - $336,043
Porirua - $378,373
Kapiti Coast - $375,081
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