The number of first home buyers taking out low equity mortgages hit its highest point in nearly 12 years of Reserve Bank data in March.
The latest Reserve Bank (RBNZ) figures show banks approved 1537 low equity mortgages to first home buyers in March, making up 45.3% of all mortgage approvals to first home buyers in the month.
That was the most low equity mortgages approved for first home buyers in any month of the year in the RBNZ's data series which goes back to August 2014, meaning it's likely to be an all time high.
The volume of low equity loans approved to first home buyers in March was up 31% compared to March last year. Their numbers have more than trebled in the last 10 years. See the first graph below for the trend.
A low equity mortgage is one in which the value of the loan is more than 80% of a property's valuation, meaning the borrower has a lower level of equity in their property, compared to a normal mortgage which requires at least a 20% deposit.
Low equity loans are considered higher risk, because they would generally give the borrower less wriggle room to restructure their repayments should they strike financial difficulties, and the bank also has a lower level of security in the event of a default.
However, low equity loans are also more lucrative for banks because of the extra fees they charge for them due to the higher risks involved.
At $983 million, the total value of the low equity mortgages approved for first home buyers in March was in touching distance of $1 billion, and also likely a record high. The total value of low equity mortgages approved to first home buyers each month has increased by more than 600% in the last 10 years. See the second graph below for the trend.
On average first home buyers taking out a low equity loan tend to borrow more money than borrowers with a minimum 20% deposit. The average size of the low equity mortgages approved to first home buyers in March was $639,558. The average mortgage size for first home buyers with at least a 20% deposit was almost $100,000 less at $540,118.
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