The cap on the amount able to be borrowed under the government's Welcome Home Loans scheme will be raised so that first home buyers can live in higher priced areas, Housing Minister and landlord Phil Heatley announced.
However, despite the increase in the amount able to be borrowed, the maximum income cap of borrowers who wish to access the scheme will remain the same.
The Welcome Home Loans scheme was set up by the government at the start of New Zealand's housing boom in 2003 as a vehicle allowing prospective first home buyers on lower incomes to access finance to buy a home.
Currently, a borrower is able to borrow up to NZ$200,000 with no deposit and then up to NZ$280,000 with a 15% deposit on the amount over NZ$200,000. However, from November, the cap on the amount able to be borrowed will be raised to NZ$350,000.
Heatley emphasised that the maximum amount of NZ$350,000 was primarily to help first home buyers living in higher priced areas. 
"While house prices and interest rates have recently come down, bank deposit requirements have increased," Heatley said.
"Borrowers will still need to prove their ability to service loans; however the new cap reflects the reality of the situation many first home buyers in places like Auckland and Wellington find themselves in," he said.
"This will also help more tenants living in eligible state homes to buy their property."
To be eligible for the scheme, one or two borrowers are allowed to have a maximum household income of NZ$85,000; and three or more borrowers are allowed to have a maximum household income of NZ$120,000. These income caps will not change in November.
Up until May 2009 the scheme had provided borrowers with NZ$719 million in finance for 4,482 loans.
Other changes to the scheme included extending it to allow borrowers to use the finance to build a house on land already owned by the first home buyer.
"We want to encourage the building of new houses and in doing so stimulate the construction sector," Heatley said.
Residential building consents crashed to record lows at the beginning of 2009, with a slight pickup seen recently, partly due to an increase on retirement village construction as the population ages.
Another extension to the scheme will allow it to be used to purchase homes on multiple-owned Maori land.
Heatley said banks were reluctant to lend to Maori groups for housing at present because multiple-owned land couldn't be used as security for the loan.
"This of course fails to recognise the ability of prospective borrowers to service the loan, which is where this extension of the scheme comes in," he said.
Current participating lenders for the Welcome Home Loans Scheme are CBS Canterbury, Kiwibank, Nelson Building Society, First Credit Union, NZCU North, NZCU Employees, SBS Bank and TSB.
What do you think? Should this government encourage homebuyers to borrow 4 times their income to get into higher priced homes. Will this have any impact on the housing market and house prices in New Zealand? We welcome your views and comments below.
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