Lock in lower loans

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As Queenstown Lakes District Council’s subsidised-housing quango completes another five low-entry homes, its chairman is urging the Government to address affordability problems.

Queenstown Lakes Community Housing Trust’s David Cole told a conference in Auckland this month that the Government should mandate 10-year fixed-interest mortgages at rates of five to six per cent for first homes.

“We’re down in Queenstown using community funding and resources to try and fix the affordability problem for people wanting to live in the area,” he tells Mountain Scene.

“That’s fine, but we have to work harder and spend more of our community money to address affordability, when part of the affordability issue is national and structural.”

Cole says the problem is that first-home buyers can pick up a mortgage at about six per cent for two years – but when it’s time to roll that over, the rate can skyrocket to an unaffordable nine per cent.

In times gone by, Cole says, Kiwi first-home buyers could get a 30-year mortgage at a locked-down interest rate through State Advances Corporation and later the Housing Corporation.

“It introduced certainty to household budgets.

“In North America and Europe, you can get 10-year, 15-year, 20-year, 30-year fixed-rate interest mortgages – but you can’t in this country.

“If you want to stretch to a five-year mortgage in today’s market, the four Australian [-owned] banks are going to charge you nine per cent, even when we’re at the bottom of the [Reserve Bank] official cash rate cycle.

“This nation is herding people into home ownership as though we are delivering them to the promised land.
“In fact, I would assert we are delivering them into a very unsafe financial environment.”

There’s an old adage that you never borrow short and invest long, Cole says.

“You never borrow money when the short-term certainty is only one or two years but the long-term commitment that you’re taking on might be 25 years.

“Yet that’s the environment we are forcing every first-home buyer into.”

According to The New Zealand Herald, the Government is receptive to Cole’s idea.

Housing Minister Phil Heatley told the newspaper: “The idea of giving first-home buyers certainty when it comes to interest rates is valuable.”

Meanwhile, Cole’s local trust has assisted 31 households into home ownership, including five in the first stage of a development at Queenstown’s Lake Hayes Estate.

Cole: “What makes them affordable is the ownership structure – the trust has, say, 30 per cent [equity] in the property, though that can vary between 20-40 per cent.”

Trust executive officer Julie Scott says there’s been big demand for the LHE homes because there aren’t many architecturally-designed three-bedroom, two-bathroom homes there for less than $500,000.

Scott: “Our entry-level purchase price of about $455,000, combined with a contribution from the trust, enables first-home buyers to access home ownership at LHE when on their own this would just not be possible.”

Cole adds: “We want to attract key workers to the district and we want to say to them, look, housing is not a reason to not come and stay. If somebody can buy a brand-new house [at LHE] for $300,000 because we’re leaving another $150,000 in there, that’s probably the price they’d pay in Christchurch.”

Next year the trust hopes to build another 20 or so homes opposite the first five at LHE.

So far, the trust’s accumulated about $7 million in funds through local development levies and Housing NZ Corporation.