The Welcome Home Loan Solution

10 October 2014

If you are keenly watching the housing and home loan market you may have noticed an increase in advertising in the past month from a number of lenders in relation to non standard lending products. One of those products achieving some good media coverage at the moment is the Welcome Home Loan, which enables those with only a 10% deposit to have the chance to purchase their own home. This is a great option for those who may have been listening to recent reports regarding the lack of affordability for those contemplating first home ownership, who may have thought that the option of purchasing their own property was out of reach.

There are certainly some restrictions with the Welcome Home Loan and with many banks relaxing their stance and able to approve up to 10% of their loans above 80% of the purchase price, there are options in some cases for borrowers to obtain funds from their existing lender. As we have mentioned in previous articles, this can often be with the help of family members, but for a lot of people there is a desire to raise the money without the involvement of others and for them, the Welcome Home Loan is a great option.

 

The Welcome Home Loan has been in operation since 2003, when it was introduced as an initiative to help low income purchasers obtain their own home without a deposit. It was originally only available through a couple of lenders and when the Global Financial Crisis and Credit crunch arrived in the late 1990’s, it became a lot harder for anybody to meet the criteria and the popularity of the product waned. As house prices stalled or went backwards, the option to borrow 100% of the purchase price became even less popular, with some banks who had previously supported the product withdrawing any options for those with little or no deposit.

However, when the Reserve Bank introduced their LVR restrictions this time last year, the opportunity arose for the Welcome Home Loan to fill a gap in the market, and we are now starting to see a lift in interest from those first home buyers who thanks to their Kiwisaver or savings habit over the past few years now find themselves in a position whereby they may be able to purchase with a 10% deposit. But don’t be put off if your savings position provides you with slightly less than 10% of the purchase price, as Housing New Zealand who oversee the approval of Welcome Home loan applications, are quite happy to accept a gifted deposit from an immediate family member if that is required getting you to the 10% threshold.

So who can apply for a Welcome Home Loan? It is available for any single person with an income less than $80,000 per annum (before tax) or a couple with a combined income of less than $120,000. The borrowers also need to have a clear credit history and affordability on lenders servicing calculators is helped greatly by a limited amount of short term external debt to provide the required cashflow to meet loan repayments. The value of the property to be purchased varies dependent on which area you are buying in. This is based on different territory boundaries with Auckland not surprisingly offering the highest price options, allowing purchases up to $485,000. There are five different caps, and the Bay of Plenty has a maximum purchase price of $350,000 in the Western Bay and $300,000 here in the Eastern Bay.

The important thing to remember with a Welcome Home Loan is that even though it’s backed by Housing New Zealand it is available through a number of different lenders, who will each apply their own set of criteria over your application. I have seen situations where clients have had their Welcome Home Loan turned down by their own bank, only for us to get an approval through another lender with the same information supplied. Although there may be slight variations, some requirements of the Welcome Home Loan are the same with every lender. Apart from those already mentioned you will also need to show 12 months continuous employment (Preferably in the same job, but sometimes within the same industry is fine), and the provision of at least six months transactional bank statements for every account held. Even with the similarities, there are differences among the appetites of the five banks who offer this type of loan locally, and your best option is to seek the advice of a local registered financial adviser, who not only has access to the products from a range of providers but also has experience in helping people use Welcome Home Loans when the size of deposit required to obtain standard home loans is not readily available. Don’t let a smaller deposit restrict your dream of home ownership. Talk to your mortgage adviser and together you may find a welcome solution to your goal of home ownership.

 

 

 

This post was written by

John White - who has written 90 posts

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