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First home buyers took out a record number of mortgages last month, but resurgent investor interest may be about to start sidelining them again, says David Hargreaves

First home buyers took out a record number of mortgages last month, but resurgent investor interest may be about to start sidelining them again, says David Hargreaves

First home buyers took out over 3000 mortgages last month collectively worth nearly $1.4 billion. In terms of both numbers of mortgages and the amount advanced these are records since the Reserve Bank began publishing this information in 2014.

But behind the headlines of a record amount of mortgage money (over $7.3 billion) advanced generally in September to all borrowers, lies a picture of shifting sands, which suggests that as things stand investors are starting to stand up strongly in the market again. And at what point will this start to impact the first home buyers?

At the heart of the recent housing story in this country has been the loan to value ratio restrictions first implemented by the Reserve Bank in 2013.

The RBNZ has subsequently conceded that the first iteration of the LVRs "disproportionately restricted" purchases of houses by first home buyers.

Six years ago, in September 2014, FHBs signed up for less than half the number of mortgages (under 1500) that the same grouping signed up for in September 2020.

The problem for the FHBs with the first iteration of the LVRs was that because it was a blanket 'speed limit' applied to the banks, meaning banks could not advance more than 10% of new mortgage money on loans in excess of 80% of the property, the FHBs were immediately at a disadvantage. As buyers they are the grouping least likely to be able to muster a 20% deposit as required for a 'normal' non-high-LVR loan. And they were swamped and outbid by the investors, increasingly.

In September 2014 the FHBs claimed, with $430 million, a little over 10% of the nearly $4.3 billion total monies advanced. 

In the same month investors took over $1.2 billion. And their share would only get higher in the months ahead.

Putting the clamps on

The circuit breaker came in July 2016 when the RBNZ announced it was clapping a 40% deposit rule on investors. It was only then that the FHBs started clawing back into the frame as investors, who by that point were claiming up to 35% of the monthly share of mortgages, retreated.

And so, fast-forward to this year and March, the last buoyant month ahead of the Covid crisis and just ahead of the lockdown, which started towards the end of the month.

A total of $6.181 billion was advanced in mortgages. FHBs took $1.137 billion (18.4%) of this while investors had $1.319 billion (21.3%).

Then we locked down, and during that time the RBNZ decided to lift all LVR restrictions for a least 12 months from May 1. This included the limits on investors, who were by the time (after earlier relaxation of the rules) requiring 30% deposits. But after May 1 that all went.

June was the first month in which we had a reasonable amount of Alert Level 1 time and therefore serves as the month in which the housing market really got re-started. 

Out of the traps...

And the FHBs were raring to go. They borrowed over a billion dollars - actually slightly more than the investors (for only the second time they've done that in a month). And while the amount of money borrowed by the FHBs was not a record, the share of the overall amount was, at 20.3%.

Next month, July, the FHBs went better, borrowing 20.4% of the total amount of monies advanced, while the over $1.3 billion they borrowed was a new high water mark too.

But something was happening in investor land. Ah, there's no LVRs any more! We can borrow up, people! No 30% deposits! And have you seen the rubbish the banks are offering for term deposits. Let's buy a second house!

And in they climbed, borrowing over $1.4 billion - but crucially, with nearly $450 million of that for mortgages with a less than 30% deposit. That compared with just over $200 million of high LVR loans the previous month.

In August the FHBs borrowed exactly the same amount they borrowed in July ($1.344 billion), but it was shared between 76 fewer mortgages and the overall share of monies advanced fell to 19.8%. 

Then in September the FHBs hit the new record amount borrowed of nearly $1.4 billion, but the overall share of the market was 19.1%. So, declining by the month.

Investors on the up

Meanwhile the share of mortgages taken by investors has risen from 19.4% in June to 22.7% in September.

So, they were behind the FHBs in June and now they are well ahead again.

The $1.661 billion borrowed by investors in September was this grouping's highest total since August 2016 - which is pretty significant since August 2016 was the first month that the banks applied 'in spirit' the investor deposit rules that were announced by the RBNZ towards the end of July that year.

The amount borrowed by investors in September was more than $600 million more than this grouping borrowed in June.

The amount of money borrowed by investors in September with deposits less than 30% was over $600 million, which was more than $400 million more than the high LVR total in June.

So, in other words, high LVR lending made up two thirds of the growth in investor mortgages between the June and September months.

FHBs hit the ceiling

What about FHBs and high LVR lending then? Well, that was already at high levels, with signs it ain't going any higher. In March 38% of the money borrowed by FHBs was on loans with a less than 20% deposit. In the curtailed month of May that actually blew out to 44.3%, before dropping again to 42.8% in June, 42.9% in July, 41.2% in August and 41.7% in September. 

Looks to me like either the borrowers or the banks have reached some kind of a 'ceiling' at a shade above 40% in terms of the high LVR loans for FHBs. 

All of which suggests that the obvious area of growth in coming months, assuming there's no reimposition of LVRs, will be in high LVR lending to investors. 

And does this mean that the investors will be outbidding the FHBs increasingly?

Super size my mortgage

Average mortgage sizes for investors have increased. In June the average mortgage size was $328,000. In September it was $376,000. If we take high LVR loans for investors (deposits smaller than 30%) the average size of these high LVR mortgages has actually blown out from $352,000 in June to $450,000 in September.

Mortgage sizes for FHBs have been more static. The average size was $451,000 in June and $462,000 in September. In terms of high LVR mortgages for FHBs, the average was $501,000 in June and $511,000 in September. 

Has the rubber band stretched as far as it can for the FHBs?

As I say, these figures would all tend to paint a picture of the investors starting to strongly re-assert themselves in the housing market. They have been dominant before and we have seen the FHBs sidelined before. Is that about to happen again? 

Well shall find out.

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Maybe they need strong numbers of investors buying to keep house prices rising, after the overseas buyers dried up? I also wonder if the number of FHBs is now higher, due to people now not being able to do their OE, or moving overseas.
I also wonder how many parents and grandparents are lending money from their savings to younger family members to buy a house, due to the interest rates they can get at the bank being so low. They can potentially make a much better return % wise by lending to family members, but it is potentially higher risk for them, especially if the housing bubble bursts and the house is worth less than the loan.
Banks are making far more now % wise from lending savers money out, than savers make from the money they deposit in the bank. Savers now make less than 1%. But all banks are, are the middle men taking a cut. So they are continuing to benefit from this, no matter how low the interest rates drop.

Banks are making far more now % wise from lending savers money out, than savers make from the money they deposit in the bank

Banks in NZ are pretty much building societies with 70% of lending going on mortgages. As the cost of credit falls, the more they need to shovel to the punters. And they create most of their 'product' out of thin air. It used to be the easiest game in town. But as they keep pumping out the loans in greater monetary amounts, the pressure is on them to meet sales targets and keep the mothership over in Australia happy. Shareholders must be getting disguntled. Share prices have been on the slide and the generous dividends primed by the Aussie govt (franking credits and all that jazz) are under pressure. The money tree looks increasingly suspext.

Yes I think there are some wannabe first time buyers feeling the heat... FFS

“. . . high LVR lending made up two thirds of the growth in investor mortgages . . . “
Nothing to be read in that other than investors being tax efficient.
Reduce any mortgage on one’s home as there is no tax advantage. Borrow as much as possible - especially if leveraging off one’s home - as interest is tax deductible.
(I know that is going to make some see red but that is the reality of investing.)

At least you've admitted that TOP had a point with their taxation policies.

It is easily amended so that interest is no longer deductible for land-rich companies.

Interesting how banks are pushing the RBNZ to reintroduce LVR restrictions yet they keep issuing high LVR mortgages to their customers like there's no tomorrow.

My understanding is that banks take into account the value of all assets that they hold securities over. So while it may seem a high LVR on an investment property, backing up that is they have a hold over both home and investment property so in reality their exposure is considerably less than the LVR on the investment property.
As for FHB, banks are not just throwing loans about willy nilly - the word is that they currently have little interest in new customers, are digging deeply into FHB employment and spending patterns, and are very, very slow in processing applications as a result.
Banks seem to be protecting their butts and are being cautious.

You are describing exactly the opposite to what seems to be happening right now. We are seeing high LVR mortgages on people who has been on employment benefits and working in high risk industries as retail or tourism, I guess we will see who's right but history is not on your side.

That's me (a FHB) with most of my savings in a term deposit for now. Damn, what a state

Meanwhile in the space of 3 years of purchasing this former FHBer was rewarded by seeing their home deposit quadruple just for taking out a mortgage.

That's good.


But of course it's the just the house you live in, society is falling apart, and your next upgrade is that much more expensive.

But cool story otherwise.

Wow, congratz ! - and rest assure as more stimulus coming, neg. OCR, FLP, More QEs etc. - my estimate by mid of next year, as we crush covid, open border and vaccine news - most likelihood the reward will move into octuple result, it is finally can be said that 'RE/Housing is the king'.

That’s really great . . . . and your mortgage interest rate will also be considerably less probably meaning an extra $200 or so a fortnight in your pocket.
“A Covid winner”.

That is the situation I am in. Leaving money in the bank with no government guarantee and so little return IMO the risk outweighs the reward. Plu keepin git locked in, when the bank is making more profit off my money than me, is obscene IMO. Guessing that is why there are so many people trying to buy, with such a small amount of housing stock available due to the time of the year. Plus people holding on to houses due to uncertainty, and hoping for big tax free capital gains in a short period of time.

I was hoping to buy a kiwibuild home for the last few years, but that was a broken promise by Labour. They call it a 'reset' but that is just a PC way of saying that they couldn't keep the promise. The things that are available tend to be shoeboxes (some under 50sqm) apartments, or almost tiny houses, or houses in undesirable places, or just cheap ugly looking houses. Plus they expected developers and buyers to cover all the costs of kiwibuild. It was never going to work. Labour got of easily due to Covid, and National not having a clue about what to do to solve the housing crisis, and they did have 9 years. Labour have already had 3. They won't solve it in 6, as they have no mandate for new taxes.

Tell us something new.

This is exactly what RBNZ wants so is not an issue for anyone except FHB who are on their own.

For FHBs a $450k mortgage in Auckland means a $300k+ deposit. Good luck!

Guessing there are second leaders out there. Eg Finance companies etc. But I thought one reason for the LVRs was to protect banks from lending more than houses are worth if the bubble pops. I wonder if the housing market has been stress tested like banks? But FHBs can be excluded from LVRs. But we don't want FHBs overpaying with inflated house prices either.

I’m actually thinking the bubble may not pop but just decrease in relevance. Maybe in 10 years time $1 mil won’t seem like much for a house, because that is how much it costs for a loaf of bread.

A loaf of bread will cost 30% more in ten years.

That's written into law with the CPI targeting mandate that the RBNZ uses to justify its reckless bubble blowing.

Same old story isn't it. The rent seeking parasites (RSVs) bid up the market. They then use the latest round of FHB suckered in as human shields to ensure politicians never do anything that might allow prices to drop. Rinse and repeat.

We have govt attuned to give a waves of quick subsidy, then RBNZ prudent measures. We quashed the Covid, economic back on track, spending are up, saving in the banks are up, there will be no better time to buy and buy more, quickly as going hard/big as you can get. More hardcore stimulus is coming, it is a certainty. And? those measures is clearly boosting up the prices, If you delay it further.. the cost will be more, so lock it Now !!

Did anyone ever answer the question as to whether that "average mortgage amount" was the entirety of the loan, or the average amount of each split loan? eg. a buyer puts half of the loan amount on a one year fixed term, and half of the amount on a fixed 5 year term. Is that one loan, or two?

With no LVR on an owner occupied purchase, FHB can now use their KiwiSaver and the Govt Welcome Home loan grant as the ENTIRE deposit amount. No need for any personal savings, but bonus points if you managed to save a few grand over the last 9 months of not being able to go out and spend money. So anyone who isnt out there raiding their Super and hitting up Kainga Ora really is an idiot.
As for existing home owners, do the math. Previously, an owner with 40% equity in their home couldnt use that equity to purchase an investment property - as they needed to keep 20% equity in the home, and the other 20% equity wouldnt be enough for the 30-40% equity required by the RBNZ. So no investment property for them. But now, lets assume you can now do 90% LVRs on everything - that releases 30% equity and you can use that to buy 3 investment properties.
Lastly, the Australian Govt has rescinded all the Responsible Lending legislation, and its highly likely that the Australian banks have instructed their NZ subsidiaries to do the same, especially since nobody even bothers to check that the "voluntary" Responsible Lending Code is even followed, let alone enforces it (unless you're some shifty pay day lender, but the banks are pretty much untouchable).

Whinge whinge whinge

LVR restrictions on investors need to be reinstated in order to encourage NHB to gain their their own house.