As the proportion of first home buyers getting mortgages continues to rise, David Hargreaves mulls whether we may yet pay a longer term price for having locked FHBs out of the market in recent years

As the proportion of first home buyers getting mortgages continues to rise, David Hargreaves mulls whether we may yet pay a longer term price for having locked FHBs out of the market in recent years

By David Hargreaves

I continue to have very mixed feelings about the rising proportion of mortgage borrowing going to first home buyers.

As I've said before, it's great to see them getting into their own homes, but they are borrowing fearful sums of money to buy into an unpredictable market that isn't offering the kinds of spectacular capital gains seen in recent years.

With all this in mind, I found very informative and thought provoking the Reserve Bank's more explicit concession in its extensive review of the loan to value ratio (LVR) regime that the first iteration of the loan to value ratio (LVR) restrictions in 2013 had indeed "disproportionately restricted" purchases of houses by first home buyers.

There was always a kind of tacit admission of this, but the report spelt it out more clearly.

Particularly I was interested in the fact that apparently, based on Corelogic sales data, the first home buyer share of house sales fell from around 25% before the LVR policy took effect in October 2013, to below 20% by early 2014.

The excellent breakdown that the RBNZ publishes now of residential mortgage lending by borrower type has been available only since August 2014.

The first iteration of the LVR policy took effect in October 2013. It made no differentiation between borrower types and simply called for banks to advance no more than 10% of their new mortgage money in high (above 80% of the value of the property) loans.

The Corelogic sales data referred to above of course covers ALL house purchases and not just those funded by a mortgage and so what I'm about to talk about is not comparing apples with apples, but we can say that in terms of mortgage lending, by August 2014 (the first month of the official RBNZ breakdown data) the total advanced on mortgages that month was $4.024 billion of which $392 million (9.7%) went to FHBs, while $1.167 billion (29%) went to investors.

By April 2016 we were looking at a grand total loaned of $6.504 billion, of which $789 million (12.1%) went to FHBs, while $2.182 billion (33.5%) went to investors.

Go to June 2016 and the total advanced was $6.803 billion. At this stage the investors were really getting warmed up, and they took $2.368 billion (34.8%), leaving the FHBs with $738 million (10.8%).

The June figures are significant. In July, with what I still feel was more than a tinge of desperation, the RBNZ took out the blunderbuss and told the investors they would have to stump up with 40% deposits.

The recovery of the FHBs

The retreat of the investors and recovering of FHB buying started from there. Yes, more recently the LVR restrictions have been relaxed both for investors and more generally. But subsequently there have been other things for investors to think about as well, including the introduction of the bright line test, and crucially the extension of it to five years by the current Government, the new foreign investment ban and the pending moves to ring-fence rental tax losses.

Fast forward to April this year then and we had a situation where a total of $5.452 billion was advanced for mortgages. Of this the FHBs took $964 million (17,7%) and the investors $988 million (18.1%). Yep, that's right the FHBs and the investors are now just about going head to head.

What does all this tell us?

Clearly the early form of the LVR restrictions did disproportionately affect the ability of the FHBs to borrow at the expense of the investors. The National Government of the time did do some tweaks with schemes such as the Welcome Home programme to try to help alleviate matters for FHBs. But of course, being a National Government, they weren't all that quick to move against investors - although they did introduce the initial form of the bright line test (after coming under pressure, not least from the RBNZ itself, to do something).

What we had then at the time, I would say was a pretty unbalanced regime in which the FHBs were very much unfairly treated and the investors were the beneficiaries.

Well, does it matter? The FHBs are back in the market now, aren't they?

Yes, but consider some hard sales data from the Real Estate Institute of NZ.

House price pain, but any gain?

In April 2014, IE five years ago, the median house price for NZ was $432,250, while in Auckland it was $611,000.

As of April this year, the latest month for which full figures are available, the national median stood at $585,000 and the Auckland median was $850,000.

This means that on a nationwide basis buyers have to find $152,750 more than they did five years ago. That's a rise of 35.3%.

In Auckland buyers need to stump up $239,000 more. That's 39.1% more.

Now what we don't know in all this is just how many would-be FHBs were simply unable to buy houses five years ago because of the LVR restrictions. Also, crucially, for how long were such would-be buyers held back from buying? Well, we know that if it has been for as long as five years then the price they are having to pay now is 35.3% more nationally and 39.1% more in Auckland.

So, there's the added cost they face, but of course there's also the fact they've missed out on all those capital gains that would have been fed back into the equity they hold in their properties.

Now, at the moment, the capital gains aren't there. Certainly not in the way they were.

Loads of money

But people are having to find a lot of money to get into their own homes.

According to the RBNZ figures the $964 million borrowed by the FHBs in April was divided among 2300 mortgages. That works out at $419,130 per mortgage. Wow.

To go a bit further, some $387 million of the FHB borrowing was for high LVR (above 80%) mortgages. That's 40.1% of the total borrowed by the FHBs.

By individual mortgage, there were 818 high LVR mortgages advanced. So that gives an average high-LVR mortgage for that $387 million total of $473,105. Eye watering.

The saving grace of course is that interest rates are at historic lows and may yet edge a little bit lower. I'm certainly expecting the RBNZ will cut the Official Cash Rate again this year. It then depends how much of that the banks pass on.

But there's a lot of money being borrowed and we don't know in the current market how quickly the FHBs will be able to increase the equity in their homes. Anybody who got in five years ago, not a problem. Now, well, we don't know.

Could we have done better?

Hindsight's a wonderful thing but clearly the RBNZ did get it right by belatedly clapping restraints on investors in 2016.

So, couldn't that have been done from the get-go back in 2013?

Maybe a lot more FHBs would have been able to get into the market when it was really warming up. Again, we don't know the numbers, but there must be a fair few out there that were held back.

In contrast, the investors were able to climb in and get the cream.

And what about the Government of the day, back in 2013? Well, yes, it tried to do some things to help the FHBs, but it was very late to the party in moving against investors.

Only time will tell, but maybe the country will still have a price to pay for a combination of an RBNZ policy that was, in its first iteration too much of a blunt instrument that actually ended up inadvertently helping investors, and a Government that was never going to take action against large numbers of its voters.

The lessons have been learned from the implementation of the LVR restrictions. Here's hoping they won't be too costly.

In the meantime, as a country we need to hope that right now we don't get any or all of: A housing market correction, higher interest rates, a slowing economy with rising unemployment.

Any or all of those things would see young home owners come under intolerable pressure.

Fingers crossed.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Thank you David.
Here's a conundrum for everyone.
In April there were 5800 REINZ sales recorded nationally.
RBNZ lending data suggests that there were 22,000 new loans for mortgages in April.
RBNZ data also suggests that 2300 'loans' were made to First Home buyers at an average of $419,000
First home buyer 'loans' represented 17% of the total new borrowing at just over 950 million NZ dollars but were only just a little over 10% of the total of new loans recorded in the month.
If they took on 2300 loans and there were just 5800 transactions then either.
a) First home buyers were able to buy 39.6% of all the property sold in April with about 17% of the total 'value' of new loans written at an average mortgage of $419,000, sounds unlikely to me, or
b) The RBNZ have no idea about how big the mortgages that people are taking really are and have misunderstood (like APRA in OZ) that the banks have been splitting mortgages into separate loans to overcome the 'loan' to value restrictions.
It's a conundrum that I don't understand..... what's the answer? a or b?

I'm guessing your question can be answered by requesting the following info from RBNZ...

1. How are remortgages (meaning refinancing at the end of a lock up period) classified in their tables ~ new mortgage lending should not include this element of lending so tables should be provided with and without remortgages included.

2. How are second mortgages (meaning additional loans against a property) classified within the data ? Can data be provided excluding or delineating this class of borrowing.

3. How do you define FHBs ? If it includes every purchase by a new trust or new company irrespective of the entities beneficial owner then the numbers make no sense at all.

Something like 1 in 5 sales are to investors. Why do you think those investors bought?

Reasons to invest in NZ Property:
1. Residency
2. Money Laundering
3. Capital Gains
4. Stability (Property is a lot more stable than shares/forex/etc...)
5. Leverage
6. Tax implications (historically negative gearing)
7. Income/cashflow

The most common reasons from the landlords I know are the bottom 3 combined in various forms. They can receive $1k a week, based on an initial deposit of $80k, while reducing their taxable income.

For most I know Capital gains never factors into it. Particularly as they get older, the cashflow is more important as a means to compliment Super.

"For most I know Capital gains never factors into it." Living up to your username I see. And how does one purchase a residential investment property to obtain residency?

Are you referring to developers, where foreigners build or commission large apartment buildings or the like and then sell them on?

The RBNZ 'new' borrowing data refers to both flow and stock of mortgages . A 'new loan' does not equate with a new house purchase,( REINZ data) but may be a top up or renewal or a change in lender. From the C31 data series description, a borrower , new or old does not equal a property, but the amount of lending or mortgage, which would mean multiple mortgages equal multiple borrowers yet a single same property. ...........................................I have added some light hearted reading with coffee .

I don’t disagree with you Cowpat, except with reference to the FHB’s where a new loan will by definition represent a purchase. So when it comes to this segment of loans you can look at how many sales there were that month and ask how did 2300 new buyers transact on 39.6% of the property sold using just 17% of the debt that was raised/created? The answer is that they didn’t purchase that many houses and what was purchased (a far smaller proportion than 2300) by that group was done using more than one loan to make up the mortgage. I spoke to a broker this morning and he said almost all of the mortgages he writes are split into 2 or 3 loans.

Therefore the concentration of debt in the system is actually far worse than people are being led to believe. The banks have been playing silly buggers with the RBNZ and APRA for the last 5-6 years. Ireland is a distinct possibility as a result. Thanks for the link, it was worth an extra coffee this morning.

Hi Joe, I agree , from the series descriptions of the RBNZ data , and happy to be corrected, a borrower, FHB or other owner occupier or investor does not equate with a single property, which would mean a FHB , ( as per your broker) owner occupier or investor can have multiple split loans and be counted as multiple borrowers, yet only relates to a single property. I located this from corelogic regarding sales purchases

How to overcome the RBNZ loan to value restrictions.
$1,000,000 purchase price.
$200k deposit
$400k (loan 1) on 1 year fix term (40% ‘loan’ to value)
$400k (loan 2) on 3 year fix (40% ‘loan’ to value). RBNZ conditions of ‘loan’ to value has been satisfied but actually the real mortgage exposure is 800k.

wouldnt one of those loans have to qualify as a 2nd mortgage and carry higher interest to cover the higher risk?????

Have a look at the LVR rules in BS19. In particular rule 7(2)(a) deals exactly with what you’re talking about.
The people at the RBNZ aren’t silly - they have likely thought quite a bit about LVR and the rules around them.

I some how doubt that Banks could lend like that it's too risky, they might as well just go back to Interest Only Mortgages. Oh wait that powder keg is about to go off soon in Oz isn't it, when lots of borrowers come off their interest only 5 year period. Ahh the hazards of a false economy.

Have you actually seen this technique work or used it yourself?

Maybe talk to your broker friend again.
Two “loans” simply means 2 loan FACILITIES/Components.. this is to hedge against interest rate risk, say taking different fixed terms. This in no way bypasses BS19/ speed limits. The L in LVR is the total lending, whether 1 or 5 facilities and whether new or existing loan.

What might be really helpful in terms of assigning blame for this hot mess, is a time track on pure section prices. That would tease out some metrics like:

  • % of total paid for 'house' attributable to land alone
  • Land cost inflation rate cf general total house price inflation rate
  • Median section costs by region/city

It would also display the underlying (literally) reason of Auckland's current softening. My unscientific Trade Me monitoring of Auckland section price has this falling a lot faster than the median house price. In fact it almost looks like that there is no divergence between Auckland and rest of NZ (post 2017) once the fall in Auckland land pricing is corrected for. But I do not have hard data.


Firstly, if FHB's need to raid their Kiwisavers to buy an overpriced home, there's indeed a long term price to pay. Secondly, skittery investors are bailing, FHB's are replacing them. The leverage risk still remains hidden in plain sight.

Now, despite Agent TTP's assertions to the contrary, how on earth can FHB's be expected to support an ailing housing market that's scant of buyers $750K and above?????

That is only the half of it... Estimates are that between 50% - 90% of FHB's (largely dependant on location) require contributions from parents in order to put together their deposits.

So a lot of FHB likely saving very little of their deposit through disciplined savings. This suggests income vs living expenses don't provide a lot of wiggle room.

Anyone who thinks this is sustainable is just crazy.

Of course its not sustainable, which is why the prices eventually stop going up (ignoring FFB and AML). Using some very rough calculations, the time it takes to save a deposit and replay the loan increases by up to 5 percent every year*. Lower interest solves the servicing problem but sometime during the next hypothetical price double it will stop being possible to save the deposit and repay the principle in our 40 to 45 years of working. And once we reach that price ceiling who would want to get into that market. (I think we are already starting to reach this limit and this is some of what we are seeing now)

7% (house prices double every 10 years) - wage inflation (as low as 2 percent).

Investors are not bailing out at all, in Christchurch anyway!
Why would they be bailing out?

The regions are trucking on and confidence is still very high in the regions and for good reason. Thousands of good opps for fhb but Retired poppy is still singing from his uninspiring song sheet

Of this the FHBs took $964 million (17,7%) and the investors $988 million (18.1%). Yep, that's right the FHBs and the investors are now just about going head to head.

What does all this tell us?

Investers dont buy into falling markets.... like Auckland

It is not that houses got pricier.

It is that New Zealanders's value of per hour worked got cheaper and cheaper.


And the overseas investors (read Chinese investors) have left for greener pastures.

Did you miss the bit about NZ having to bring in a Foreign Buyers ban and Anti Money Laundering regulations, along with several other countries?

First home buyers might indeed be caught out. But the borrowing rules did not cause it. Those were just a response to a crazy house price situation. Which in turn was caused by negligent immigration management and a population explosion.


There's a social cost too; the extra distance and time now required to commute to a job where your wages are artificially suppressed because of the extra migration brought on to induce a capital gain that pushed up your house price beyond sanity.

The moves away from families, the people who put off having children until they had a stable home environment, people who can no longer live near their parents and the health effects from trying to navigate this mess while being told to lower your expectations by the people who creamed it as this whole situation unfolded.

All the while paying for their retirement while trying to save for your own. And for what thanks? To be called lazy, inept, snowflakes?

Yes all that older generation is self entitled and doesn't give a flying F... about what happens next being socially, economically , or environmentally

Oh what a mouthful. BUT so truthful

“borrowing fearful sums of money.” And the scary thing about that, is that it is probably the understatement of the year. So far, at least. The record low OCR just has to be a prime contributor to this very dangerous, developing crisis, trading bank mortgagors collateral criteria will not hold the line, when the manure hits the cooling device. FreddieMac, Fanny Mae wherefore art thou.

Yes there are several prices to pay if you leave FTB's locked out and or forced to take on huge mortgage debts:-
1) High risk of mortgagees when mortgages interest rates have to rise in the future.
2) You end up locked in a cycle of low mortgage rates and much lower saving rates, so it's hard to get returns on investments.
3) Puts more pressure on the bank of Mum and Dad.
4) Makes it very hard for families to "trade up" to a larger property if their family size increases.
5) More young people have to move back to their Parents home in order to save for a deposit, bad news for Landlords.
6) Puts more pressure on families resulting in more divorces, single parent families etc...

Is $419,130 a big mortgage?

Depends what you are buying with it, and what you earn. For a house in Murupara it would be huge, for a house in Auckland thats a fairly typical FHB mortgage, some would even say thats a small mortgage.

At current exchange rates that’s a mortgage equivalent to the average UK house price of £225,000. Except that that this isn’t the real average mortgage for a first home buyer because ‘loans’ that make up the total mortgage aren’t being aggregated in the reporting.

Joe another way to look at it, We have circa 1,900,000 households , of which approximately 650000 households rent. They in general would carry no mortgage,(although some could rent while renting their own). Of the owner occupied households approximately 30-32 percent have no mortgage, paid in full . What percentage of the rental properties have no mortgage , is hard to calculate, but given that they are in general owned by owner occupiers the debt will be carried by the same group. A further 50000 homes would carry no mortgage for miscellaneous reasons .On that waffly basis , we have 265 Billion in current RBNZ stated mortgage debt plus the bank of Ma and Pa and plus a little more, divided in aggregate among those households that carry a mortgage or multiple mortgages which equates to between 220000-320000 NZD per indebted household, dependent on the variables. The aggregated levels no way show where there are debt issues , but given that Auckland during 2015 and 2016 accounted for upwards of 60 percent of all new lending , and most likely has done so previously , its not hard to work out that there may be a significant increasing number of stressed Auckland households, at a time of stagnant prices and , and its not surprising that the RBNZ is cutting the OCR. Giving 12 Billion a year in interest alone to four foreign banks so we buy our own houses is bizarre.

In the stock market, when the smart money exits and the dumb money piles in, you pretty much know that its time to get out.

Yeah, in the old days, the saying was, when the office boy starts buying shares.

...or when the shoe shine boy starts giving you stock buying tips.

what about when a junior lawyer is telling you to buy crypto?

Wait, what now? I'd love to hear the rest of that story.

Ardern on Kiwibuild. Can't even get the Year 1 target right. Hopeless.

Behind their paywall...

Well you (probably) voted for her Fritz! Next year will be interesting ....

Yes. And I don't regret it.
Because although very disappointed with performance to date, the previous muppets were poor, and got worse over time.
And there have at least been some important initiatives which the Nats would never have passed, like the FBB.
Generally, I don't have much confidence in politicians, whether left or right.

David, I think most resident investors and Aucklanders in general remember how National clapped lending restraints on us (NZ local investors) in 2016.

We also remember and observed that these restraints had very little effect on slowing down house prices in Auckland in fact they continued to sky rocket upward since there were no constraints on Foreign Buyers and Money Launders. All the 'local Investors' were effectively pushed out of Auckland and in to the regions which is why places like Hamilton, Qeenstown and Tauranga which shot up in value.

So in conclusion, the market has already been sucked dry in Auckland. Relaxing LVR's won't help matters that much for FTB's, it will just put them and the banks a even more risk and cause a debit spiral. Better to bite the bullet and let top end prices drop they're going to anyway.

Thats exactly the reason why I packed my family, and headed back to Aust. I thought working as a lawyer in NZ would get me ahead.... boy was I WRONG. After the huge expense of costs to live in a small town in NZ on $80k a year, I was left with a measly $50 per week. I went to a mortgage broker to see if he could help this FHB... only with a pitiful look of dissappointment (no commission for him)... 'come back when you are closer to the $70k deposit' he said, for the $350k shithole that I was looking at... give or take $5-10 on my savings per week it would take me 27 years to save that!!! I now make $230k as a Contracts Specialist (way less stress than a lawyer) my wife found a job for $40k and we are buying a brand new house 4x2 next to the beach for $350k in Perth. When I see other NZers on various mine sites, we dont great each with 'hello' or 'kia ora', we say 'living the dream', a reflection on how lucky we feel to be here.
Young people MUST leave NZ to get ahead- its a sad but honest fact.

What did you do with the money you were making the first time you we're in oz back to Perth?

Highly likely he was first starting out. If he's youngish. Finish Uni 23ish, make measly money for 3 - 4 years, paying loan off and scraping by, go back to NZ scraping by for 3 -4 years on measly money, then back to Oz with experience, at 30ish and voila making good coin, able to save and buy a house.

That's similar to me, I earn OK money, but had the audacity to have kids, became single income, so I went to the UK, just could not afford to live in Auckland and NZ, dislike the weather in UK so will go back to NZ one day. I'm trying hard to start a business in the UK that I can take anywhere in the world, so if it works will look at moving home, but to the countryside or Coromandel, definitely not Auckland, its way overpriced. I like NZ for fishing and other outdoors stuff. But If I cant setup my business and I cant afford to live in NZ (it is very expensive) then I will look at Brisbane more likely Noosa. NZ doesn't want educated kiwis trying to start-up businesses anyway, money needs to be spent on property. NZ is not really for NZers on single incomes as well.

Sounds like your way of dealing with things is part of the over all problem not a viable solution.

As much as I hate to say it, it's kind of true? I mean I'm having a hard time feeling sorry for Kiwis who move overseas, pay taxes overseas, and then expect to swan back to lifestyle blocks as opposed to the people who live here, prop up the state and are slugging it out as living costs escalate and they are priced out of basic stuff like housing.

This comment resonated with me, Aus and in particular the Aus resources industry is the saviour for many a NZ'er struggling to get ahead

As long as you can maintain spending habits, the multiplied savings on a decent income increase takes years off saving for a deposit.

As a prospective FHB in Auckland, I would guess $419K is well below the average loan size. I would think more like $550-$600K is likely in Auckland.

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