What was the First Home Grant?
The First Home Grant (FHG) was a payment of between $5,000 and $10,000 that the government made to assist first-time home buyers in getting into a house.
It had some eligibility criteria which were:
- Buying your first house.
- Contributing to KiwiSaver.
- Earning less than $95k as a single borrower or under $150k as two or more borrowers.
- Some property price caps to work with (eg $875k in Auckland).
This was payable to each borrower, so the Government could give borrowers a $20,000 bump toward their deposit.
The reality
It sounds really good, but the income component of the eligibility criteria meant I hardly ever saw it be used. More to the point, of those who were eligible, most could complete their purchase without it.
To really hammer the point home, in the last 12 months we helped 20 customers get into their first homes. Four of them were eligible for the grant, three of them didn’t need it (but took it anyway because why the hell wouldn’t you!).
The vast majority of our clients are Auckland-based and, as I said in a recent LinkedIn comment:
“If you earn enough to meet the servicing threshold for a high LVR loan big enough to hit the required price point of a house in Auckland, then there’s a 96% chance you’ll earn too much to get the grant. It’s always been like that.”
Unpacking the jargon
There’s a bit of jargon in there that’s worth unpacking because if you do, you’ll realise that losing the grant won’t mean much to most first-time buyers.
- Servicing threshold. Every bank makes you go through an affordability test to make sure you can meet the loan repayments. Totally expected. The interest rate used in that calculation is about 9% and they set it nice and high like that to make sure you can meet the repayments, come what may.
- High LVR loan. This describes a loan where your deposit is less than 20% of the purchase price. The loan to value ratio (LVR) is consequently considered ‘high’.
Most people don’t know, but the servicing threshold that you have to meet for a high LVR loan is even higher than the servicing threshold required if you have more than a 20% deposit.
When you think about the average price of a house in Auckland, you’ll quickly come to the conclusion that the loan required to buy one is fairly large, which makes the servicing threshold equally as high. And if you’re in the High LVR category, the threshold is even higher.
High threshold, low income
If it sounds like a fairly steep slope to climb, then you’re right, it is!
The problem is that the servicing threshold the bank wants to see you get over is high, but the income threshold to get the first home grant is low. The upshot is that the FHG has never worked all that well in Auckland, and that’s where 99% of our customers live.
This explains why so few of my first-time buyer clients last year were eligible and, ironically, why most of the eligible folk didn’t actually need it.
Taking this all together, that means Labour whining about National taking away the hopes and dreams of a generation of homeowners is, frankly, utter drivel!
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