The number of first home buyers taking out low equity mortgages to get into a home of their own hit a record high in July.
The latest Reserve Bank (RBNZ) figures show that 1336 low equity mortgages were approved* to first home buyers in July, which was up by 47% compared to July last year and was also the highest ever recorded in a month in the RBNZ data series which goes back to 2014.
A low equity mortgage is one where the borrower has less than a 20% deposit to put towards the purchase of a property, and they are usually significantly more expensive for the borrower because of the additional fees the banks charge for them.
The RBNZ figures also show that low equity mortgages made up 44% of all the mortgages approved for first home buyers in July, which was also the highest ever figure in the same data series going back to 2014.
That helped propel the average estimated price first home buyers paid for a home in July to an almost three year high.
Interest.co.nz estimates that the average price first home buyers paid for a home in July was $685,600, the highest it has been since October 2022.
That's still down by $32,100 (-4.5%) from the record estimated price paid by first home buyers which was $717,700 in April 2022.
The average size of the mortgages approved to first home buyers with at least a 20% deposit in July was $533,800, while the average low equity mortgage approved for first home buyers in July was $637,800.
Both are staggeringly large amounts of debt for first home buyers to be taking on, and the figures are particularly worrying in regard to low equity borrowers, because they are likely to have less wriggle room to restructure their mortgage should they strike financial difficulties, particularly in the first few years after buying their home, when they are unlikely to have built up much equity in their property, especially in the currently soft using market.
*Note: The Reserve Bank's monthly mortgage approval figures may be significantly higher than mortgages actually put in place. You can read more about this here.
The comment stream on this article is now closed.
10 Comments
Banks are plumbing new depths in their desperation to grow their loan books.
What could possibly go wrong...... Negative equity and banks books further underwater!!
So the banks are now throwing the kinltchen sink at the Collapsing NZ Housing Ponzi.
Using hapless FHBs, as expendable brake pads, to arrest the NZ housing markets massive crashing slide backwards.
Slow Clap for the Scandalous NZ banksters!
So the banks are now throwing the kinltchen sink at the Collapsing NZ Housing Ponzi.
It's quite weird. If you know anything about the remuneration structure of Aotearoa banking, you will understand that in terms of bonus / incentive structures, it's weighted towards the top of the pyramid. The foot soldiers are not really incentivized at all. The top brass doesn't really close any deals, but make out like bandits on the efforts of others down the chain.
Upper management doesn't give a rats if the loans are dirty and the kids have to sell a kidney / bag of meth to make payments. And ultimately, in a worse case scenario and the subprime loans all went bad, it will not be the banks cleaning up the mess.
Is that a new bank...never heard of it.
I've got a friend who took one of these out. They are in their mid 20's, out of uni with good qualifications, great incomes, just starting in life, paying a mortgage is about the same as renting and they're paying off extra chunks as quickly as possible, they bought a house that needs a bit of work at a good price. I think it's brilliant.
I bought my first home using the same 20 years ago. Saved me a shedload.
Me too!
But we borrowed less than 3x our incomes!
WHATS THE RISKY BORROWING MULTIPLES TODAY??........
I was borrowing at a much higher rate tho. These guys can fix for a while at under 5.5 whereas I think it was 9% for me.
It can work for those who will see high incomes in the future but there is some luck involved
True, for those with solid jobs and increasing wages year on year......
Yet for the banks, needing to now load the Subprime Borrowers as their primary artillery rounds, into the chamber - shows their primary ammunition grade is damp and rust covered.
Not a solid defensive strategy for the banks loan books, taking the deadly hits, as they are today
Yet for the banks, needing to now load the Subprime Borrowers as their primary artillery rounds,
Correct. If your marginal buyer pool could largely be classified in the subprime category, the Ponzi has a problem.
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.