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.
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