Falling interest rates not having much affect on the amount first home buyers are paying for a home

First home buyers' housing market activity appears to have remained remarkably consistent over the last 12 months, despite falling interest rates.

The latest figures from the Reserve Bank show 1996 mortgages were approved to first home buyers in February this year, barely changed from 2019 approved in February last year.

That was in spite of the fact the average two-year fixed rate mortgage offered by the main banks declined from 6.83% to 5.09% over the same period.

The amount first home buyers borrowed and the estimated purchase price of the homes they bought, was also little changed over that period.

Reserve Bank figures show the average size of the mortgages approved to first home buyers increased only slightly, from $549,282 to $557,615, up just $8333 (1.5%) for the year.

Similarly, intererest.co.nz estimates the average amount first home buyers paid for their homes increased from $661,000 to $664,000 over the same period, up by just $3000 (0.5%) for the year to February.

The one figure that has changed significantly for first home buyers over the last 12 months is the number taking out low equity loans, where they have less than a 20% deposit.

Their numbers steadily increased from 600 in February 2024 to 765 in February this year.

Low equity loans made up 29.7% of mortgage approvals to first home buyers in February last year, but that figure had jumped to 38.3% in February this year.

While Reserve Bank figures suggest the number of first home buyers getting into a home of their own has remained relatively static over the last 12 months, they also suggest their share of the housing market may have declined slightly.

There is a common misconception that most of the new mortgages issued by the banks are for the purpose of buying property, but that is not the case.

Reserve Bank figures show the majority of new mortgage approvals are the result of people switching banks or refinancing in one way or another.

Of the 16,286 mortgages approved in February this year, just 6057 (37.2%) were for the purpose of purchasing a property, down from 39.8% in February last year.

It is likely that a third of those were to first home buyers, down slightly from 35.2% in February last year.

So while the number of first home buyers getting into a home of their own probably hasn’t changed much over the last 12 months, their total share of the property market may have declined very slightly.

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