First-home buyers now pay more — but the government says people are still signing up
Prime Minister Christopher Luxon has defended the government's decision to stop helping pay a fee that low-deposit first-home buyers face, saying the higher cost has not put people off applying.
The First Home Loan scheme, run by the government housing agency Kāinga Ora, lets first-home buyers buy a house with a 5 percent deposit instead of the 20 percent most banks ask for. Borrowers using the scheme pay an insurance fee — a charge that protects the lender if the borrower defaults, because the deposit is so small.
Last year the government stopped paying part of that fee. That pushed the cost for borrowers up from 0.5 percent of the mortgage's total value to 1.2 percent — an average increase of nearly $4000 per borrower. RNZ
Luxon told RNZ that application numbers have not been affected. Kāinga Ora approved 7761 new First Home Loan applications between 1 July 2025 and 30 April 2026. Infometrics figures separately show purchases using First Home Loans rose 31 percent in the year to June 2026, to just over 4000. RNZ
Ministry figures show first-home buyers accounted for just over 35 percent of house purchases in the past year, down from a peak of almost 40 percent in 2023 but well above the 21 percent recorded in 2017. RNZ
National has also promised, if re-elected, to expand access to the scheme by lifting the income threshold so that anyone earning less than $300,000 combined could qualify. The existing income caps, set in 2022, are $95,000 for a single buyer with no dependents and $150,000 for multiple buyers or a single buyer with dependents. RNZ
The proposed $300,000 threshold would open the scheme up to many more people. For context, a two-income household where both earners are on the median wage would currently sit well above the existing $150,000 cap for multiple buyers. Under the proposed threshold, households earning nearly double that figure would qualify for a 5 percent deposit pathway.
Luxon also addressed the broader economic conditions facing borrowers. New Zealand's latest inflation figure was 4.1 percent, a two-year high and outside the Reserve Bank's 1 to 3 percent target band. That has prompted interest rate hikes. Luxon said that excluding the effects of the Middle East conflict, inflation was inside the target band at 2.9 percent, and that food price inflation was at 1.9 percent. RNZ
He noted that inflation had previously been above 7 percent, without referencing potential global causes such as the Covid-19 supply shock. Two years earlier, interest rates were as high as 5.5 percent, though they were creeping back up following two successive official cash rate hikes. RNZ
The First Home Loan scheme has changed several times over successive governments. Under Budget 2022, the loan cap for first-home products was increased from $200,000 to $500,000, with a 15 percent deposit required for every dollar borrowed over $200,000. Kāinga Ora
Kāinga Ora also operates the First Home Partner scheme, under which an annual administration fee applies from year 15 to cover reasonable costs incurred by the agency. Kāinga Ora
The political test for the government on this issue is straightforward. Ministers framed the fee increase as a cost adjustment that would not dampen demand, and the application and purchase data through to mid-2026 appear to bear that out. Whether that holds if interest rates keep rising is a separate question. The First Home Loan scheme helps borrowers get past the deposit barrier, but it does not protect them from the cost of paying off the mortgage once they have it. A borrower who entered the scheme at the higher fee now faces both that upfront cost and the rising mortgage rates that came with 4.1 percent inflation.
The broader context here is that Luxon's argument about underlying inflation — 2.9 percent once Middle East effects are stripped out — is a framing that matters for monetary policy expectations. But the headline figure is what the Reserve Bank is required to target. Borrowers, including those on First Home Loans, will be charged interest based on the headline rate, not the adjusted one.
