Government’s plan to help first-home buyers: What you need to know

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A suite of changes designed to “tilt the balance” toward first-home buyers have been unveiled by the government today, so what are they?

Open home sign at a house for sale in East Auckland

The government plans to help first-home buyers into the market, by increasing the caps for financial support, and extending the bright-line test to 10 years. Photo: RNZ / Claire Eastham-Farrelly

First-home buyers

If you’re a first-home buyer, from 1 April the income caps for the First Home Loan and the house price caps under the First Home Grants scheme will increase.

For the First Home Loan scheme, borrowers can get a home loan with just a 5 percent deposit if they earn under $95,000 a year for one person, or under $150,000 for two or more people buying together. These loans are underwritten by Kāinga Ora and can be obtained with participating lenders (e.g. banks).

The First Home Grants scheme gives first-home buyers a lump-sum payment from the government, up to $5000 for existing properties, or up to $10,000 for new properties.

The eligibility criteria for the First Home Grant are the same as the First Home Loan except you also need to be a KiwiSaver member to receive a first home loan.

The amount you can get in your grant depends on how many years you have paid into the scheme.

The scheme also only applies to properties worth under a certain value. House price caps for new and existing stock under the First Home Grants scheme have been lifted across various parts of the country.

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People buying together can also combine their First Home Grants to put towards the purchase of the same property.

Supply

The government has also promised to pay for the infrastructure required to make more land ready to build on.

It has set aside $3.8 billion under a Housing Acceleration Fund that will be used to pay for all the critical infrastructure required to make a housing development happen.

The government expects councils to free up land through the implementation of the National Policy Statement on Urban Development.

Modelling suggests this fund could help build up to 130,000 homes, but the real number will depend on council zoning changes, and buy in from the sector including councils, iwi, private developers and the not-for-profit sector.

Alongside the Housing Acceleration Fund is the Kāinga Ora Land Programme which will focus on government land purchases. It will borrow an extra $2b in an effort to scale up public housing supply.

Demand

Key to demand pressures is a crackdown on those owning more than one property. Aiming to tackle this, the government is also expanding what is known as the “bright line” test.

The current rule means additional properties (not the family home), that are bought and then sold within five years are taxed.

The government is doubling that to 10 years from 27 March. New builds, however, remain under the five-year rule.

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The tax is calculated as income tax on the profit amount.

Inherited properties and those which have been the owner’s main home for the entire time they owned it will continue to be exempt from all bright-line tests.

Bright line test proposed changes - April 2021

A so-called tax loophole is also being closed, in an attempt to discourage speculation.

Currently when owners of residential investment property calculate their taxable income they can deduct the interest on loans that relate to the income from those properties (claimed as an expense). This reduces the tax they need to pay.

The government will consult on the changes but interest deductions on residential investment property acquired on or after 27 March 2021 will not be allowed from 1 October 2021.

Interest on loans for properties acquired before 27 March 2021 can still be claimed as an expense, however the amount you can claim will be reduced over the next four income years until it is completely phased out.

This means that in the 2025-26 and later income years, you will not be able to claim any interest expense as deductions against your income.

Property developers (who pay tax on the sale of property) will not be affected by this change. They will still be able to claim interest as an expense.

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