Future looking brighter for first home buyers
First home buyers and property investors are back in force, but is the window of opportunity about to close?
First home buyers with a ready deposit and stable employment have been making the most of record low interest rates and a yearlong loosening of deposit rules. This is part of the reason there has been a surge in housing market activity since the Covid crisis first struck.
Younger Kiwi’s still love property
Before Covid, some had suggested that younger generations might not have the same love for houses that older Kiwi’s do. There was some talk that younger New Zealanders might be more inclined towards cosmopolitan apartment living, perhaps in or near city centres to avoid lengthy commutes. Covid has destroyed such theories, and with more people working from home or spending lengthy periods at home during lockdowns, the Kiwi dream of homeownership seems as relevant as ever.
Backing this, mortgage interest rates look set to stay exceptionally low over coming years.
A window of opportunity
The crisis may also have created a window of opportunity for ready and willing new buyers to get on the property ladder. On the other hand, first-timers are sometimes being pushed aside by “cashed up" investors, perhaps looking to exit commercial property and instead take on residential real estate.
The numbers support the theory that investors are making the most of the situation. According to analysis by ASB bank, the share of overall new lending to first home buyers hit a high of 20% in August 2020, with property investors edging up their share to 21%.
While prices are already high in most major centres, ASB economists now predict the housing market will soar by another 12% by June 2021. This is a good thing for first home buyers who can purchase soon, as they’ll hopefully capture most of that 12% increase in home value in the form of increased equity (the market value of the home, less the total mortgage debt owing).
Could the “window” close?
These same house price increases could push home ownership out of reach for many first homeowners.
In addition, the Reserve Bank has warned it’s looking at the prospect of re-introducing loan-to-value ratio (LVR) limits on mortgage lending in response to price increases in much of the country, and economists are openly requesting this too. LVRs were introduced back in 2013 to cool the property market. But in April this year, the Reserve Bank removed all LVR restrictions for 12 months.
Housing prices up for most first home buyers
Around most of the country, typical first home buyers will need to save more and borrow more to get into their own home, but may be finding the mortgage payments a little easier once they get there.
Interestingly, while house prices are up in most parts of the country, at the bottom end of the market, Auckland house prices have stayed largely flat. The latest sales figures from the Real Estate Institute of NZ show the national lower quartile price (the price point at which 25% of sales are below and 75% are above) was rising strongly at the beginning of the year, hitting $480,000 in March. This was up a whopping 19% compared to 12 months earlier.
That trend was evident throughout most of NZ, with the lower quartile price in September being higher than it was in March in all of the country except Auckland and Southland. In four regions – Waikato, Bay of Plenty, Wellington and Otago – the lower quartile price reached record levels.
But things were different in Auckland, where the lower quartile price peaked at $737,500 in March, dropped back to $705,200 in May, and has bounced around between $722,000 and $730,000 over the last four months.
What does that mean for a mortgage?
In most of the country the increase in prices has pushed up the amount of money first home buyers will need to save for a deposit and the amount of money they will need to borrow for a mortgage.
The amount of money needed for a 20% deposit on a home purchased at the national lower quartile selling price increased from $96,000 in March to $100,000 in September, while the amount needed for an 80% mortgage increased from $384,000 to $400,000 over the same period.
But in Auckland the amount of money needed for a 20% deposit on a lower quartile-priced home dropped from $147,500 in March to $145,000 in September, while the amount needed for an 80% mortgage declined by $10,000, from $590,000 in March to $580,000 in September.
Naturally, Auckland remains the most expensive region with a lower quartile price that is 45% higher than the national average. So, first home buyers in Auckland still face a considerably more difficult path to home ownership than those in the rest of NZ.
New build as a first home
To help keep costs down, many first home buyers are purchasing ‘new builds’ in the form of house and land packages. Getting lending (mortgage) approval can be slightly harder but buying a house and land package can save significant upfront cost when compared with buying an already built home.
If you’re a potential first home buyer or property investor, (or even if you’re an existing homeowner), it’d be the pleasure of one of our team to have a complimentary and no-obligation initial chat to see how you can make the most of the current situation. Leave your details below and we’ll be back in touch within a workday.