First home buyers likely accounted for more than a third of property purchases in February but high levels of low equity mortgage lending could foreshadow future problems

First home buyers remained very active in the market in February but were a little more cautious with their borrowing.

According to the latest Reserve Bank figures, 2395 mortgages were approved for first home buyers in February this year, up 20% compared to February last year.

That was the highest number of mortgage approvals to first home buyers in the month of February in the Reserve Bank's current data series which goes back to February 2015.

That gave them a 36% share of all of the mortgages approved in February for the purposes of buying a residential property, their biggest share of the market since July 2024.

However, while the number of first home buyers was at a record level for the time of year, the figures show there was a slight easing in the average price they were paying for a home and in the average amount they were borrowing.

Interest.co,nz estimates the average price paid by first home buyers in February was $684,000, the lowest it has been since August last year, but is still up by $17,000 (2.5%) compared to February last year.

The average size of the mortgages approved to first home buyers in February was $579,541, the lowest average loan amount since September last year.

The Reserve Bank figures also showed a significant drop in low equity mortgage approvals to first home buyers in February.

Banks have been pumping out higher risk, low equity mortgages (where the borrower has less than a 20% deposit) to first home buyers since the beginning of last year. These accounted for a record 51.8% of mortgages approved to first home buyers in January this year, dropping back to 46.0% in February.

However, low equity lending at 46% is still extremely high and is up from 38.3% in February last year, and 29.7% in February 2024.

The risks associated with these loans are compounded by the fact that on average they are bigger loans than those approved to buyers with a minimum 20% deposit, and they are generally used to finance the purchase of more expensive properties.

The average size of the low equity mortgages approved to first home buyers in February was $640,327, compared to $527,821 for those with at least a 20% deposit.

The risks associated with low equity lending could come home to roost if the current economic turmoil facing the country starts to flow through to higher unemployment and a resulting drop in income for some borrowers.