More and more first home buyers are taking out low equity mortgages to get into a home of their own.
In April, 2695 mortgages were approved to first home buyers, according to the latest Reserve Bank figures.
Of those, 1095 (40.6%) were low equity loans where the borrower had less than a 20% deposit and the mortgage was for more than 80% of the property's valuation.
The percentage of low equity loans to first home buyers has increased steadily over the last decade as house price inflation has outpaced income growth.
In April 2015 just 25.2% of mortgages approved to first home buyers were low equity loans.
Although low equity loans can help people who have not been able to save a 20% deposit get into a home, they are an expensive option.
As well as borrowing more than someone with a 20% deposit, low equity borrowers also face substantially higher repayments because of the extra fees banks usually load into low equity loans.
According to interest.co.nz's Home Loan Affordability Report, the mortgage payments on a home purchased for $599,000 with a 20% deposit would be around $597 a week. The payments on the same home purchased with a 10% deposit would likely be around $766 a week.
The higher level of repayments on low equity loans does not appear to be encouraging first home buyers to lower their sights in terms of the prices they are paying.
Latest borrowing figures suggest low equity first home buyers are consistently buying more expensive homes than those with a 20% deposit.
Interest.co.nz estimates that the average price paid by first home buyers with a 20% deposit in April was $657,000, while the average price paid by first home buyers with less than a 20% deposit was $713,000.
The average size of the mortgages approved to first home buyers with at least a 20% deposit in April was $526,000, while the average mortgage approved to first home buyers with less than a 20% deposit was $642,000.
That could suggest a potentially higher risk profile for first home buyers taking out low equity loans in the event of another economic downturn, both for the borrowers themselves and the banks lending to them.
16 Comments
Seems risky - at least to me. In my opinion there is still a reasonable chance we have another 10-20% fall in prices in the next 24 months in which case these buyers (and the bank) find themselves in negative equity.
Seems risky - at least to me
Unless you're super lucky, risk is one of the only other ways to do better than treading water.
Not necessarily saying a house is the specific risk one takes, but that you'll need to do something risky.
Oh...so you think it is like the Casino?
It's a fair call the vested frown upon those who practice calculated patience vs emotionally driven spontaneity.
All human activity is driven by emotion (without it, you'd do nothing at all).
Sad fact is poppy, the 90s was a long time ago, and the system doesn't reward sitting still very well anymore.
system doesn't reward sitting still
Sitting still? That's one miss-interpretation. Do you have any more?
Loads, but feel free to dress it up however you'd like. Just getting a job and quietly putting a portion into a retail savings mechanism doesn't pay off these days, how it did for you.
In an effort to avoid a misinterpretation, I read your response twice. The second I was left feeling even more depressed than the first.
Was this your intention?
I'd you're depressed by me pointing out that being commercially conservative has had a diminishing efficacy in recent history that's all on you.
Or is the depression I didn't get into a greater tit-for-tat with you about the sexy, windswept and interesting savers vs the irrational, emotionally charged spontaneous types.
How about we just pretend you got a rise out of me.
How about we just pretend you got a rise out of me.
I sense you're now feeling uncomfortable and you want to dump and run. Fair enough.
I can do this as long as you feel the need.
You've used most of your bag of tricks though.
Not like
I think life is exactly a casino.
I agree that you need to take some risks in life and that being too conservative is not rewarding, but I like to think that I have more influence over the outcome of my life, than I would have at the casino.
We definitely know the odds of each game in a regular casino.
What are the odds of:
-your conception
-the time and place of your birth
- who you met, friends and romantic partners
- what's going on at this particular time in the economy/global political sphere
We're mostly reactionary, if anything.
These poor FHB sops are being used by the Banks/REA toerags, as market props.
Cannon fodder.
These are not the solid props that will hold and could be washed away with annual stormwater floods.
Well, people need to live somewhere, and waiting for optimal circumstances can be a rather fruitless, or long effort.
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