New Zealand Government Mortgage Program Undercuts Credit Unions

Auckland, N.Z. – Twenty-one New Zealand credit union mortgage programs are facing stiff new competition from the Kiwibank and its government-backed program that’s offering first-time house buyers mortgages with no down payment. The Kiwibank claims it is “the totally New Zealand-owned bank, where the profits will stay in New Zealand. We’ll keep your fees low and have outlets in more communities than any other bank in the country.” New Zealand credit unions keep saying – wait a minute, we are totally New Zealand owned financial institutions. They point out that while the banks in New Zealand are mainly owned off-shore, credit union funds are reinvested within the community. Kiwi Bank is state sponsored. The mortgage program is slated to run for two-years and was announced by the Minister of Housing Steve Maharey. According to the program’s provisions, people who make up to NZ$50,000 (US$30,472) a year and for couples with a combined salary of NZ$100,000 (US$60,944) with a good credit history, will be able to purchase a house for up to NZ$100,000 (US$60,944) with no down payment. A 5% down payment is required for anything over NZ$100,000 ($US60,944). The average house price is NZ$232,000 (US$141292). NZ$99,000 (US$116,331) will buy a small three bedroom-house anywhere in New Zealand except the Auckland area, according to Vicky Mackenzie, spokesperson for the New Zealand Association of Credit Unions (NZACU). The Kiwibank mortgage program requires applicants have a good credit history and can afford the repayments. To get an idea of salaries paid in New Zealand, newspaper want ads state a call center employee would be paid NZ$35,000 (US$21,330) and an accountant NZ$50,000(US$30,472). Mackenzie said that the weekly salaries of the average credit union member may be between NZ$200 (US$121) and NZ$300 (US$182). Minister Maharey said that their program ” is possible because we’ve developed and are funding an insurance policy to the value of NZ$5.3 million (US$3.23 million) as part of this trial, to allow Kiwibank to approve home loans for these people.” “ For many people, such as Housing New Zealand Corporation tenants paying market rent, home ownership is only just out of reach,” he said. The government developed the program because they say private home ownership rates have fallen over the last decade from 74% to 68%. A study by Massey University reported a different situation. The study said, “Rising house prices are not squeezing people out of the mortgage market and it is getting easier to borrow money.” They claim people’s ability to borrow money for a house has risen 2.8% in the last quarter with the exception of Auckland, where there was a 3.8% decline in home affordability. Another factor increasing pressure on credit unions’ mortgage programs are dropping mortgage rates after Alan Bollard, Reserve Bank Governor, cut the official cash rate. The Bank of New Zealand dropped its variable rate from 7.59 to 7.35%, Westpac lowered its floating rate from 7.5 to 7.35%, and BankDirect reduced its variable rate from 7.3 to 6.99%. Credit unions offer a floating 7%, Mackenzie said. Credit unions require down payments starting at 5%. The down payment must not be a gift, but the borrowers’ money. Mortgages can be written for up to 25-years. However credit unions have limited money to lend for long-term loans. NZACU CEO Doug McLaren said “Credit unions, which are the alternative banking solution, offer affordable financial services to people of modest means, and whilst Kiwibank serves the same market they have never been a real threat to credit unions. However, this new government-backed no-deposit mortgage scheme gives Kiwibank a competitive advantage which we believe in the long-term will be a disservice to communities.” Kiwiibank became a reality two years ago. It posted an NZ$8.03 million (US$4.89 million) loss this year but is predicting a profit by June 2005. Kiwi has 147,000 accounts and NZ$465 million (US$283 million) in deposits. Home loans grew from NZ $42 million (US$25 million) to more than NZ$500 (US$304 million) million in their second year of operation. This compares to New Zealand’s 43 credit unions which have 172,000 Credit Union members and total asset size in excess of NZ$440 million (US$268 million). Most Kiwibank offices are located in post offices where staff has been trained to answer questions. “We applaud measures to help people of modest means move ahead and we hope that the government will consider extending this scheme, which is on trial with Kiwibank, to credit unions and other sound financial co-operatives that have the best interest of communities at heart”, McLaren said. “We are most unhappy that the government had not discussed this scheme with us prior to its launch as credit unions serve the same market as Kiwibank and already provide affordable financial services to New Zealanders.” -