First home buyers keep the mortgage flag flying

Personal Finance / analysis

RBNZ figures show first home buyers had their biggest share of the mortgage money advanced last month since the RBNZ started publishing the detailed information in 2014

24th Nov 22, 3:44pm by David Hargreaves

Source: 123rf.com. Copyright: faithie

The first home buyers (FHBs) are continuing to make their presence strongly felt in the mortgage market - even as overall levels of mortgage advances still languish in the wake of the buying frenzy in 2020-21.

Latest mortgage lending by borrower type figures for October from the Reserve Bank (RBNZ) show that of the $5.588 billion total advanced in the month, some $1.219 billion (21.8% of the total) was to the FHB grouping.

That's easily a new record high percentage in a data series that's been published since 2014, beating the previous high of just 20.8% set in August of this year.

The ascent of the FHBs came as investor interest continued to lag (after its huge surge in 2020 after the loan to value ratio - or LVR - restrictions had been removed). The investors borrowed just $909 million in October, which was 16.3% of the total - although this was slightly up on the 15.8% share for this grouping in September.

The total amount borrowed in October of $5.588 billion is a long way shy of the over $7.7 billion borrowed in the same month in both 2020 and 2021. We need to look back to October 2018 to find a smaller (very slightly) total of monies advanced in an October.

The latest October figures do show an increase on the September 2022 figures, which were $5.135 billion. It might be expected that there would in any case be a seasonal uptick, but the RBNZ suggests the rise was a little more than that.

In its summary of the latest data, the RBNZ says on a seasonally-adjusted basis the October 2022 figures were up 6.2% from September.

The RBNZ said the average value of new mortgage commitments across all borrower types rose this month, following four consecutive monthly decreases, up 4.9% from $352,243 in September to $369,626 in October. The average loan size across all borrower types was up 0.1% annually.

There were 15,118 new mortgage commitments in October, up 3.7% from 14,578 in September. Compared with October 2021, the number of new mortgage commitments were down 27.7% from 20,905.

The RBNZ said October 2022 had the lowest number of commitments for a month of October since the data series started.

That's been a familiar story this year.

The monetary amounts have been down across the board, although not necessarily strikingly so. But the fact is the mortgage size is so much bigger now than it was two years ago that perhaps looking at the numbers of mortgages issued is a more salient measure of the state of the market than the overall dollar amounts.

The RBNZ said on Wednesday it was now expecting the house market to drop 20% from peak (November 2021) to trough.

And of course on Wednesday the RBNZ lifted the Official Cash Rate by a record 75 basis points to 4.25%.

And of course the RBNZ's conceded it is deliberately engineering a recession - which it's forecasting to begin in mid 2023.

It will be interesting to see how the mortgage market fares over the summer months. At the moment it's being supported by the unbreakable FHBs.

The RBNZ provided this summary of the latest monthly figures.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

38 Comments

by J.C. | 24th Nov 22, 4:01pm 1669258886

Time for the young people to get in behind their country. In the immortal lyrics of 'And the Band Played Waltzing Matilda':

When I was a young man I carried my pack

And I lived the free life of a rover

From the Murrays green basin to the dusty outback

I waltzed my Matilda all over

Then in nineteen fifteen my country said Son

It's time to stop rambling 'cause there's work to be

done

So they gave me a tin hat and they gave me a gun

And they sent me away to the war

by Rhumline | 26th Nov 22, 6:41pm 1669441278

Interesting to see you selected Australian lyrics. How many born and bred New Zealanders frequent this site?

by interest-ed | 24th Nov 22, 4:08pm 1669259313

Lambs to the slaughter

by Cur8or | 24th Nov 22, 4:52pm 1669261951

You have to look at the number of mortgages because the NZ Peso is now less of an indication of the asset's value.

by HouseMouse | 24th Nov 22, 4:55pm 1669262112

With these rising interest rates the FHB segment of the market will slump in the next 6 months. Not necessarily in % terms of the overall market but certainly in dollar value terms.

by IT GUY | 24th Nov 22, 5:40pm 1669264856

What do people not understand, The RBNZ have said they are engineering a recession,

If 5.5% ocr does not do it, they will keep raising the OCR until they get their recession.

It is not the time to buy a house at these price levels.

Collectively, it seems, that the central bankers of the world have decided to pop the bubble now, before it gets any bigger. Lets hope they are not already to late.

by stefanblaise | 24th Nov 22, 5:43pm 1669264980

Poor little buggers.

by Chairman Moa | 24th Nov 22, 5:48pm 1669265317

The DGM gang is right in their predictions.

TTP

by IT GUY | 24th Nov 22, 6:18pm 1669267080

We are not going to hear much more from TTP. RIP.

He may play the Combover and Church, I was only making an educated guess card, but I think TTP is too stubborn to do so, he is more likely to rejoin the conversation with a new userID

He does seem to perhaps have found a new God.

by Chairman Moa | 24th Nov 22, 6:21pm 1669267288

Ashley Church as his new god?

by IT GUY | 24th Nov 22, 7:54pm 1669272852

The Goddy types forgive all....... all are welcomed in the House, donations via Pushpay

by tothepoint | 24th Nov 22, 11:38pm 1669286291

❌ WARNING: Imposter lurking above. ❌

(Chairman Mao is signing himself off as another person.)

TTP

by interest-ed | 25th Nov 22, 10:34am 1669325674

Love to see your copyright on the use of that acronym.

TTP

by WestieAJ | 24th Nov 22, 10:04pm 1669280680

In 2021 1.326 billion was lent to 1763 borrowers at DTI of >7. That is an average of 752,000 each.

Which makes the average income best case 107k to service the loan. What happens when these people have to refix at 7% ? That is just the tip of this cluster F%^$$%n iceberg.

Potential fist home buyers just need to wait patiently.

by Nzdan | 25th Nov 22, 9:04am 1669320290

Banks use test rates as a stress test for borrowers, with the purpose being to ensure borrowers can manage higher interest rates.

I wonder what test rates were in 2007 when the average 2 year rate was 9.6%? And why was the average test rate 5.8% in 2021?

The cluster F%^$$%n iceberg has 2021 test rates starting with a 5 and 2022 mortgage rates starting with a 6.

by ozzzy2 | 25th Nov 22, 2:36pm 1669340180

Do they also factor in that most people lie on their applications?

by Sluggy | 26th Nov 22, 1:34pm 1669422841

That is a national sport.

by Chaosinflesh | 25th Nov 22, 10:20am 1669324807

OTOH, 2,000 dwellings is 0.1% of NZ houses, and an even lower % of the population.

It's a very very tiny percentage of people affected, and that's why I think the OCR is going to go significantly higher than the RBNZ is currently letting on.

by Carlos67 | 25th Nov 22, 11:21am 1669328501

I agree, the people that are not able to buy a house are still in the same position, many bought before the prices skyrocketed and also had near zero rates for a couple of years to start paying it down. The RBNZ are going to be privy to all the numbers, they know the choke point so a few will get sacrificed.

by WestieAJ | 25th Nov 22, 11:39am 1669329548

Like I said. Just the tip of the iceberg. But that always melts first and will drip over everyone like Chinese water torture. Here's another stat for 2021. Loans to owner occupiers that also had investment property as collateral with a DTI >9. 1.46 billion to 1552 borrowers. That 940k average for the house they live in. F knows what they owe on their rentals.

940k needs $65,800 per year to service interest at 7%. That means 86K per year of gross salary just to pay the interest.

by Fitzgerald | 25th Nov 22, 10:22am 1669324928

It is an absolute cluster f$#@%k.

And we are so used to continually being propped up that any government (red or blue) will be unable to resist trying to swoop in and "save" borrowers.

This will not only take down our economy. It will eventually also take down our dollar.

5 mOrr years.

by interesting1234 | 25th Nov 22, 11:01am 1669327304

Borrowers begone

debt be paid

struggle we must

if we are all to be saved

by Gibgibgib | 24th Nov 22, 11:12pm 1669284772

FHB's and lending will drop off. It's near on impossible to borrow money from the bank these days, income needs to be substantial. Anything above a DTI of 4 doesn't work, and this will only reduce as the servicing test rates increase. Under the current criteria many people cannot afford their current lending let alone additional lending (according to the bank tests)

by interesting1234 | 25th Nov 22, 8:54am 1669319664

Mortgages may be dominant with FHB but we must factor in also that many will buying outright or with a more substantial deposit thanks to the bank of the boomers, sorry, I mean mum and dad. This will somewhat shelter many from the larger interest rates and still allow them to survive the coming economic storm. We may be seeing the beginning of the elongated wealth transfer form the baby boomers to their children, starting with the house deposit.

by WatchItFall | 25th Nov 22, 9:13am 1669320835

I took a quick look at Auckland Auction results. It looks like the market has turned pretty quickly! There are some crazy prices vs. CV starting to pop up. I have ignored $2.5M+ as I think it is a completely different world (but there are big results going either way of CV in that market too).

Just in the last week (since Monday), there have been:

6 properties have sold for greater than -20% below CV
13 properties have sold for greater than -10% below CV (including the 6 above obviously)
66% of properties are selling below CV
The average price has been -8% vs. CV

by Fitzgerald | 25th Nov 22, 10:25am 1669325140

And those CVs are lower than the peak market prices were.

I didn't believe The Prophet and his -30% before Christmas predictions. But they are starting to look very nearly possible.

by Brock Landers | 27th Nov 22, 7:55am 1669488955

The Prophet and his followers have been persecuted for not holding back on the truth.

by tuisbest | 25th Nov 22, 10:42am 1669326127

Thanks, WatchItFall. Let's watch it burn.

P.S. Let's bring along tissues for the highly indebted and marshmallows for the FHBs.

by Nellbell | 25th Nov 22, 10:10pm 1669367426

Wow that’s quick to see such substantial drops. Change between CV 2017 and CV 2021 was 35% increase, NZ wide. These sales at 20% below 2021 RV are now getting very close to 2017 values ( a 26% decrease will wipe out all the gains between 2017 and 2021)

by SND | 25th Nov 22, 10:11am 1669324270

Isn't that a natural and mathematical balance if other categories (non-FHBs, investors) postpone or cancel their plans?

by 7jai | 25th Nov 22, 2:34pm 1669340065

So when FHB's cant buy, people complain about housing prices and about greedy people/landlords/existing homeowners. And now when details immerge that FHB's worked hard, saved up, and are taking out mortgages to buy their first home, people say things "lambs to the slaughter".

Really? Bi-polar a bit guys?

-7

by Nellbell | 25th Nov 22, 5:30pm 1669350639

I think that is out of concern. The market has only started it’s shift, any first home buyer purchasing now is likely to lose all of their equity. This is not a good time to buy.

by linklater01 | 26th Nov 22, 10:55am 1669413326

7jai,

"When FHB's cant buy is incorrect. It should be FHBs(a simple plural therefore not requiring an apostrophe) and then can't(short for cannot). Cant is either insincerity or a tilted position.

Just trying to be helpful.

by Small Kev | 26th Nov 22, 6:37pm 1669441031

7jai, it’s called hating.

by Chaosinflesh | 26th Nov 22, 9:55pm 1669452926

I think you've misinterpreted the meaning there a little, 7jai.

The first part is about concern for FHBs and the limited availability, and thus high prices, of suitable housing stock due to an unequal ability to obtain credit compared to existing home-owners and investors - regardless of ability to service a mortgage. Yes, there is the outrage at the people who benefit most from the system, which could be considered quite justified given the unfairness of the situation, (and for balance, many of those people aren't investing in housing to dick FHBs out of homes, but to further their own financial situation using the advantages available to them) - but that doesn't make the positions inconsistent.

"Lambs to the slaughter" is talking about the innocence of those who are willingly putting themselves, likely out of ignorance, in a situation where in the near future they will be in negative equity with possibly much higher servicing costs. The risk of losing their home, and the equity they worked so hard to achieve, in the face of an adverse event is ridiculously high, and this saying reflects that.

Both are out of concern for the FHBs, but for different reasons. And concern for others is not a mental disorder.

by phalanax | 26th Nov 22, 10:00am 1669410007

"The RBNZ said October 2022 had the lowest number of commitments for a month of October since the data series started."

You! Yes, you behind the bike stands ,Stand still laddy! (Roger Waters) Hard to see much happening when the RB is bent towards stagnating spending. Market confidence probably preparing to plumb new lows...quite logical to assume folk will tighten their belts. There are some however that will be patiently waiting for the planets to align so they can make their move , likely they wont be rushing in until they are confident the hiking cycle has ended and even then the rates will need to drop significantly from their peaks, so it could be a longer journey than many anticipate. Stand still laddy.....lol

by linklater01 | 26th Nov 22, 10:57am 1669413473

At this rate, it won't be long before I see the figure 6 in my TDs. Yippee!.

by Carlos67 | 27th Nov 22, 10:59am 1669499949

My pick is March 2023 for rates starting with a 6. Had 4.8% by Christmas predicted for a long time by Christmas, but Christmas came early this year. Very real possibility of 1 year TD rates now very close to 6% next year.