First home buyers are moving away from higher risk, low equity mortgages

Property / news

First home buyers becoming less likely to face negative equity due to slightly lower prices and a big decline in low equity mortgages

28th Sep 22, 11:52am by Greg Ninness

First home buyers are holding their own in the housing market but their risk profile is changing significantly as they become more conservative in how much they are prepared to pay for a home and how much they are prepared to borrow.

The latest mortgage data from the Reserve Bank and sales figures from the Real Estate Institute of NZ suggest first home buyers' share of housing sales has been reasonably steady at about 40% over the three months to August, which is about the same as it was over the same period of 2021.

However during that time there has been a big shift among first home buyers to lower risk borrowing.

When the housing market peaked in November last, just over a third (33.9%) of the mortgages approved to first home buyers were low equity loans where the borrower had less than a 20% deposit.

By August this year that figure had dropped to just over a quarter (26.9%).

Conversely, the percentage of mortgages approved to first home buyers with at least a 20% deposit increased from 66.1% in November last year to 73.1% in August this year.

On top of that, the estimated amount first home buyers are paying for their homes, and the amount they are borrowing to finance those purchases, has dropped slightly.

Interest.co.nz estimates that the average price paid by all first home buyers for a dwelling was $705,000 at the peak of the market in November last year. By August that had declined slightly to $687,000.

Perhaps surprisingly, there is not a lot of difference between the prices being paid by first home buyers with less than a 20% deposit, to those with at least a 20% deposit.

Interest.co.nz estimates that the amount paid for home by first home buyers with a low equity loan was $711,000 in August, compared to $678,000 by first home buyers with at least a 20% deposit.

However the amount they are paying has not fallen by as much as the overall movement in house prices.

Since November last year the REINZ's lower quartile house price has declined by 10.4% while the median price has declined by 13%.

But over the same period the estimated average amount paid by first home buyers for a home has declined by just 2.5%.

That suggests first home buyers are continuing to pay the maximum they can afford to get into their own home, in spite of the uncertainties in the market.

But they are probably getting a bit more housing bang for their bucks than they were a few months ago, and overall will be less at risk of facing negative equity should the current housing downturn worsen significantly.

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54 Comments

by HouseMouse | 28th Sep 22, 12:16pm 1664320613

Good article.

would be good to dig into some explanations. Maybe low deposit higher value explained by FHBs utilising Homestart?

by tothepoint | 28th Sep 22, 12:14pm 1664320483

Good to read evidence that first-home buyers are covering their bases.

TTP

by HouseMouse | 28th Sep 22, 12:23pm 1664321001

Those who are eligible for Homestart (within income caps) can potentially buy with a 5% deposit. Those who are not eligible will typically need 10-15% deposit as a minimum.

As Homestart is new builds, non Homestart FHBs buying more existing properties (older flats etc) at lower values

by YourHomeLoan | 28th Sep 22, 12:56pm 1664322982

It's because the current threshold for the temporary LVR restrictions is at 10% of new borrowing....and the volume of transactions is at all-time lows, so there is almost no availability for low deposit lending.

If the government make it legal for first home buyers to buy houses again with 10% deposits then you would see more able to enter the market and not just those with deposits coming from the Bank of Mum and Dad.

by taimaiakka0 | 28th Sep 22, 12:14pm 1664320451

"First home buyers becoming less likely to face negative equity due to slightly lower prices and a big decline in low equity mortgages"

Only if FHb shows some more patience after holding for such long, will definitely be in a better psistion - Get maximum value for their money.

Market had fallen significantly in July and early August and was holding for a month but again starting to see some cracks as more and more properties are comming to market as need only one vendor, who has to sell and that will helps in pulling the overall market down for FHB , just like earlier, one property selling at premium use to lift the overall market up.

More the listing, more the fall in downhill market.

Very well presented house with excellent location are still going at decent price, though the number of those sell can be counted in fingers. Can witness real estate agents trying to whip those sell to influence.

It will get worse before getting better.

by tothepoint | 28th Sep 22, 12:21pm 1664320868

In fact, there are plenty of residential properties in top locations that are fetching record/premium prices.

Clearly, purchasers continue to have the cash reserves (plus the wherewithal and foresight) to buy top-echelon properties.

Notably, "old money" never dries up.

TTP

by taimaiakka0 | 28th Sep 22, 12:30pm 1664321426

Not really.

One property in Pakuranga that really went at premium is being flaunted everywhere in media - lobbying.

It seems that it will get worse before getting better - high probability as reserve banks to cover up their past mistakes are bound to do blunder, in process .......

Wait and Watch.

by Caughtinthemiddle | 28th Sep 22, 12:30pm 1664321449

Evidence based comment? HPI begs to differ as do record low auction clearance rates and rising stock on TM.

by GV 27 | 28th Sep 22, 12:32pm 1664321562

Taking The Proverbial

by Beanie | 28th Sep 22, 12:33pm 1664321589

Looking around my acquaintances, the older that money gets the less faculties get attached to it. I suppose there is some logic to spending like no tomorrow when you are going to funerals regularly.

by Fluffybunny | 28th Sep 22, 12:41pm 1664322115

The older money now needs to be sold up and used to Cover retirement.

Equals more money spent on services and Less locked Up in asset value.

Equals inflation.

I'm not bagging boomers for acting in their best interests over the past few decades.but either which way they are a significant population group, share certain behaviours, and As such do effect market's in general with collective behaviours

by j reacher | 28th Sep 22, 2:13pm 1664327624

Taima i totally agree. I dont think a lot of people read the news or know what is going on round the world, live in their own little bubble!

by BigBen | 28th Sep 22, 12:34pm 1664321687

Rather than trying to be clever and time the market, these FHBs can now get on with their lives, building families, creating memories. Sure, the property may dip in paper value for a period, but the alternative thinking of waiting a few more years to try time the bottom and put your life on hold doesn’t sound overly appealing.

by J.C. | 28th Sep 22, 12:43pm 1664322208

Agree 100%. Except if buying a house also has financial consideration either for A) savings; and B) making money (whether that be making a motza or a greater ROI than the price of money).

My thinking is that the sheeple believe that buying a house should make them money over the short, med-, and long-term.

by Solid_Granite | 28th Sep 22, 12:43pm 1664322236

Fine, just don't call them "first home buyers" as it's likely to be the one and only home they'll ever buy.

by Juzz | 28th Sep 22, 1:36pm 1664325391

They may get out of mortgage prison in 10 years with good behaviour.

by taimaiakka0 | 28th Sep 22, 12:48pm 1664322527

Not when it is so nakedly visible, where market is heading.

Not try to time the market but now when putting the value in paper, should be based on future dip so should offer accordingly lower.

by Idoubtit | 28th Sep 22, 1:22pm 1664324576

If it were nakedly visible where the market was heading, none of these property articles or speculative comments would be necessary.

by taimaiakka0 | 28th Sep 22, 2:01pm 1664326913

Human nature.

by Idoubtit | 28th Sep 22, 2:03pm 1664326996

What is human nature? I'm not sure how that relates to your comment?

by DTRH | 28th Sep 22, 1:13pm 1664324035

Sitting in negative equity is not good for young families, huge financial difficulties as higher mortgage payments occur with rate hikes, hard to move when family grows. At the moment it is obvious we are only at start of downturn and price’s are already falling, nobody knows how deep or long this downturn will be but will definitely be more than 24 months and even then will stay flat for years. Inflation is also going to be factor it could be quite some time before it hits target levels again. The value of NZD is also tanking this will keep inflation high. Most people if giving advice to their children would say wait for while as this downturn could change their lives if it continues and price’s are definitely not going up for years.

by Iceman | 28th Sep 22, 1:52pm 1664326340

Typical short sighted mentality. Do you actually own property? I’d hope no one takes your “advice” on here. I’ll say it again, it’s the very people that try to time the market miss out time and time again and then complain. I have bought during peaks and troughs, still better off had I not bought. PS - temporary slightly negative equity means absolutely nothing if you can continue with your repayments.

by Juzz | 28th Sep 22, 1:47pm 1664326046

I'd rather buy once the market starts to rise than when its 1/3 the way to the bottom.

by Iceman | 28th Sep 22, 1:50pm 1664326259

@juzz and I assume you’ll know exactly when the market is about to rise while analysts, real estate agents, the government, and others involved in property don’t know this?

by Juzz | 28th Sep 22, 2:08pm 1664327288

We will all know when the market rises, there will be fundamental reasons for it and sales data to back it up. It will not suddenly jump back to absurd levels overnight. I have a background in analysis, and do you think an REA has no vested interests.

by lucenera | 28th Sep 22, 4:01pm 1664334087

Every asset that needs to be acquired by making debt will start rising again when debt will start being cheaper again.

Super super easy prediction.

The best time to buy is when OCR start going down again, shifted 3/6 months.

People that didn't buy before were not stupid, but not able to afford a deposit.

Nothing about "timing the market".

The difference between most recent homeowner and renters is not IQ, is family money.

by Juzz | 28th Sep 22, 5:05pm 1664337911

Unfortunately, there are some banks of mum and dad who have put themselves into precarious situations a little too close to retirement. There should have been earlier govt intervention, it's not fair so many got caught up in BS FOMO.

by DMC45 | 28th Sep 22, 5:40pm 1664340029

How does the bank of mum actually tend to operate? Idle cash to the kids, guarantees to the bank to backstop their kids loan, increase their own (mum n dad) mortgage?

Obviously no whiff of a parental bank in my family.

by Juzz | 28th Sep 22, 7:38pm 1664347083

I'm aware of joint ownership arrangements or we'll buy for you now and you get finance when you can. The ones that had straight handouts seem to be ok, just locked into a mortgage they were not expecting to get this expensive.

by Idoubtit | 28th Sep 22, 2:00pm 1664326818

How do you know its only 1.3 of the way to the bottom?

by Juzz | 28th Sep 22, 2:11pm 1664327466

When I say a third it is rough estimate, there will be variances between areas. 1.3 the way there would suggest it's bottomed and over corrected 30%.

by DTRH | 28th Sep 22, 6:00pm 1664341226

Iceman you are getting upset again, are you having a problem keeping up with your payments ? with the nonsense you write I would be surprised it you could organise and finance the building of a Lego house. Shopkeeper if you wait till next week this Lego house will be 50% off, Iceman no I will buy it today at full price thanks.

by Juzz | 28th Sep 22, 1:42pm 1664325725

Exactly, these spruikers are without morals. How unethical are theses people acting in all areas of their professional and personal lives? Sick predators seeking a payday, absolutely shameless. IMHO of course

by BigBen | 28th Sep 22, 1:56pm 1664326581

So your advice to a FHB, say in their 30s is to wait potentially years for something that might happen? Be stuck in the rent trap of moving from house to house, hold fire on building a family? One thing you’ll find you can’t buy back is time.

by Juzz | 28th Sep 22, 2:15pm 1664327701

I'd say at least wait untill FLP is gone after December this year. I'll be looking at buying once the RBNZ stop increasing OCR and could be as early as march or there abouts. I never said to wait years.

by Juzz | 28th Sep 22, 2:21pm 1664328087

I'm in my 30s btw, you only need to look at HPI trajectory to know we have not yet started to to level off let alone revert. I'll be purchasing if I seen a sustained reversion prior to OCR leveling off. Most likely mid next year.

by CrispyKahawai | 28th Sep 22, 3:30pm 1664332220

You do realise that renters are also able to start a family, right?

by RickStrauss | 28th Sep 22, 3:48pm 1664333338

Yes, ones near us have spoken of how much they've enjoyed having to move regularly while raising young children.

by Brock Landers | 28th Sep 22, 6:07pm 1664341663

Especially the prospect of changing schools I bet.

by swapacrate | 28th Sep 22, 7:46pm 1664347560

I don't think the bottom is going to bounce, I think there will be a long long plateau, where house prices track incomes, so no point on wasting a few hundred grand by buying now, you have plenty of time now people are not panicking and buying. Let inflation and mortgage rates do their work.

I've been waiting years using my money to grow my business, not sure what the rush is. Business is ticking along well now, in 2 years we can look at buying a cheaper house with a bigger lifestyle section. People might even have realistic prices after suffering the pain from people not buying.

by fact123 | 28th Sep 22, 1:37pm 1664325478

The issue here is not about lower risk tolerance. The issue is banks tightened up lending in low deposit space as they risked breaching low deposit lending caps. In November last year the limit was 20% of all lending on low deposit lending now its 10%. So to constrain demand cut off scores are set at double what they before so fewer people approved. If this limit was increased so would low deposit lending as people here tend to buy with a 5-7 year view.

by Brock Landers | 28th Sep 22, 1:42pm 1664325737

That suggests first home buyers are continuing to pay the maximum they can afford to get into their own home, in spite of the uncertainties in the market.

The foolish ones are paying the maximum while attempting to catch a falling knife.

The smarter ones are keeping their powder dry while the market continues to crater.

The wisest ones are rejecting the lousy overpriced terrace shoebox for proper lifestyle.

✈️ ✅ 🔆 🌊 🦘

by Iceman | 28th Sep 22, 1:43pm 1664325835

The crap that I keep reading on here daily is simply amusing. Let’s go with what you said though - it must be law because the infamous DGM Brock Landers says so.

by Brock Landers | 28th Sep 22, 2:10pm 1664327427

If you have an opinion that is contrary please feel free to share it.

It would be a refreshing change from your usual narcissistic and racist ranting.

Such a shame that comedy gold was deleted.

by Iceman | 28th Sep 22, 3:01pm 1664330515

@Brock Landers let’s remind everyone that you are the real racist who wants only white immigrants and wants to keep Nz white. Such a tool - cannot take you seriously.

by Brock Landers | 28th Sep 22, 3:46pm 1664333169

The colour of a person's skin is irrelevant. Your obsession with skin colour is what's known as projection.

I welcome people based on the content of their character and their ability to contribute to and integrate with society.

A bad egg is rotten on the inside - as you so aptly continue to demonstrate.

by Iceman | 28th Sep 22, 4:44pm 1664336687

You’re contradictory as heck, and disguise your racism very subtly. You need help mate.

by Brock Landers | 28th Sep 22, 6:27pm 1664342862

Perhaps you could give us another one of your non-subtle racist rants.

by Amokk | 28th Sep 22, 2:10pm 1664327401

Oh yeah the ol 'DGM'...as its doom and gloom to want house prices to come to a realistic and rationale value commensurate to fundamentals........

Its great to see trolls with a shit load of skin in the game continue trying to talk the market up with shit like 'Oh it'll be all good in x years cos NZ house prices are untouchable so go out and buy now before they go up x million' - never mind the fact they are so out of whack right now that unless you were getting an absolute bargain all the facts point to at least a moderate ongoing correction and its best to wait.

But gotta keep the pyramid scheme that is NZ house prices going eh champ - cos we all know what happens when people stop buying into those....

What's wrong with pyramid schemes?

Pyramid schemes are doomed to fail because their success depends on the ability to recruit more and more investors. Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid.

by DTRH | 28th Sep 22, 5:36pm 1664339817

Iceman you really need help from financial advisor, why buy a house today with so many variables pointing to a massive falling market. This time next year if you buy today the house purchase will probably be in negative equity.

by Brock Landers | 28th Sep 22, 6:06pm 1664341611

Perhaps also a mental health professional also if that impressive outburst of narcissism yesterday was anything to go by.

The whole world is just jealous of his rental or commercial portfolios and everyone that is not him is a kiwi loser.

Apparently.

by taimaiakka0 | 28th Sep 22, 2:03pm 1664327007

This apply to all asset class be it housing or stocks.

by SND | 28th Sep 22, 1:46pm 1664326003

Is it a FHBs decision or banks being more selective?

Like the increasing percentage of FHBs entering the market when investors are moving away. Just simple maths.

by stefanblaise | 29th Sep 22, 7:05am 1664388311

In a falling market, it may not be negative equity in the sense that their mortgage becomes worth more than their house, but it's certainly negative for their equity.