Can you afford a home of your own?

Let’s get this out of the way, lest we lazy, entitled Millennials incur the wrath of boomers: it’s never been easy to buy a house. If you want to own your own home, you’ve got to work hard, save hard, and probably play very little.

But the fact is, though home owners 30 years ago had to contend with mortgage rates of more than 20 per cent, house prices were about three times the average annual household income. Today, that ratio is more like five times, and, in Auckland, almost seven; house prices increased 8.1 per cent in the year to March alone.

“When I talk to older people who bought houses, it wasn’t easy for them either,” says Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research. “They worked really hard, and saved a lot of money, because back in the day, you needed 20, 30 per cent deposits. But the difference was house prices used to be much lower, relative to incomes and those sorts of things.”

New restrictions on residential mortgage lending, designed to dampen demand for housing, will not help aspiring homeowners get their first foot on the property ladder.

The Reserve Bank introduced higher “loan-to-value ratios” in October in a bid to reduce the chance of a crash in the housing market and the damage that would inflict on the economy.

The new rule limits the amount of lending banks can approve for customers who have a loan-to-value ratio of over 80 per cent, meaning most aspiring home owners now have to have a minimum deposit of 20 per cent of the property’s value in order to secure a mortgage.

The change is predicted to affect up to 8000 of the 20,000 to 30,000 families, couples and individuals who seek to buy their first home each year (though Labour has vowed to force the central bank to introduce an exemption for first home buyers, if it wins the next election).

According to the Reserve Bank, lending to those with a deposit of less than 20 per cent fell to 12 per cent of total new lending in October, compared with 26 per cent in September – and there’s been a 27 per cent decrease reported in the number of first home buyers attending open homes since the rules took effect.

With the national median house price at $407,525 in October, saving $80,000-odd for a 20 per cent deposit is no mean feat – but it’s not impossible, even with the higher LVR ratios, as Eaqub points out.

“It will discourage or delay some people, but we’ve been here before in New Zealand,” he says. “In the 1980s, we had very strict LVR restrictions, but that didn’t necessarily stop people from wanting to buy houses.”

There are government schemes designed to give first-time buyers a leg up, but you’re best placed to make the most of these if you are a) in a couple, b) you have a joint annual income of close to, but no more than $120,000 before tax, and c) you’re both members of KiwiSaver and have been making at least the minimum contribution for at least three years.

You’re in an even better position if you’ve got some savings, and you’re looking to buy anywhere other than in Auckland, Wellington, Queenstown Lakes, Christchurch and Selwyn District.

More than two million people are currently enrolled in KiwiSaver, including about 67 per cent of eligible people aged 18 to 24. Though the voluntary, work-based savings initiative is intended to enable long-term saving for retirement, it can also be used to help members buy their first home. In the year to the end of June, nearly 11,000 people had used their accounts for that purpose.

There are a couple of ways you can do it. Firstly, you can withdraw all or part of your savings in KiwiSaver to go towards buying your first home. Employer contributions and returns such as interest are included, but government contributions, including the $1000 kick-start payment, are not – so make sure you’re convinced it wouldn’t be best put towards your retirement.

If you do decide to put it towards your first home, there are a couple of criteria, but none regarding income before tax: you need to have been making at least the minimum contribution to KiwiSaver for at least three years, and you need to be intending to live in the property. The withdrawal is administered by the KiwiSaver scheme providers and, if approved, the funds are paid to your solicitor on or before settlement day.

If you have been making regular contributions for at least three years, you may also be eligible for the KiwiSaver first-home deposit subsidy, of $1000 for each year of contribution (up to a maximum of $5000 and five years). It can be used to buy your first and only home, which you intend to live in; you may only receive it once, and, if you move out of the house within six months of buying it, you will be required to pay it back.

If you are the sole buyer, you must have earned $80,000 or less before tax in the past year. If two or more of you are buying a house together, you don’t all have to be signed up to KiwiSaver, but if you are, you may all qualify for the subsidy – but your combined income must have been $120,000 or less in the past year.

The property must fall within the maximum house pricing caps, which are reviewed annually and broken down by region, and range from $300,000 to $485,000.

Auckland ($485,000), Wellington City and Queenstown Lakes ($425,000), and Christchurch City and Selwyn District ($400,000) are the top three; residential properties in Thames/Coromandel, Hamilton City, Western Bay of Plenty, Tauranga City, Kapiti Coast, Porirua City, Hutt City, Upper Hutt, Tasman/Nelson and Waimakariri are capped at $350,000, while the rest of New Zealand is capped at $300,000.

To be eligible for the deposit subsidy, you must also have a deposit of at least 10 per cent of the house’s value. This can include both your savings withdrawn from KiwiSaver, and the deposit subsidy you may be eligible for, and any other funds, like savings, fixed-term deposits or funds already paid to a real estate agent.

Housing New Zealand administers the deposit subsidy, and it is paid to your solicitor on settlement day. The subsidy can’t be paid out after the settlement has occurred, so it’s important your application is sent to HNZ no later than four weeks before settlement.

If you’re struggling to save for a large deposit, but can afford to make regular repayments on a home loan, you may be eligible for the Welcome Home Loan, a mortgage insurance scheme that allows aspiring first-home owners to buy with a 10 per cent deposit, despite the Reserve Bank’s changes to loan-to-value ratios.

The criteria are very similar to those for the KiwiSaver deposit subsidy: the caps on annual household income before tax and house price by region are the same, and you must have a deposit of at least 10 per cent of the property’s value. You need to be buying your first and only home, which you intend to live in, and you must meet the lender’s credit criteria. Your deposit can also include your savings withdrawn from KiwiSaver and the KiwiSaver deposit subsidy.

Finally, if you don’t mind having your choice of property restricted by more than price, Housing New Zealand’s new FirstHome initiative might suit. The programme, intended to help people on “modest” incomes buy their first home, gives them a 10 per cent deposit (capped at $20,000) to buy surplus, vacant state houses in provincial areas of the country.

In order to be eligible, applicants must be first-time buyers, and have an income equal to, or less than, the national household average of $53,000 for one person before tax or $80,600 for two or more people. You also have to be able to commit to owning and living in the house for at least three years.

But the Government’s been explicit: FirstHome properties will not be in Auckland, Wellington and Christchurch. The message is clear: if you want to buy property in one of New Zealand’s main centres – or even a little way out of them – you’d better start saving.