Homeowners who bought during market peak can't upgrade their homes because have little or no equity.
According to the latest OneRoof house price figures, the nationwide average property value is almost 13% (-$141,000) below its highest point post-Covid.
While a handful of regions (Otago, Southland and West Coast) have returned to their value at market peak, many are still significantly under.
The slump has wiped $300,000 off of Auckland's average property and $278,000 off of Wellington's - much more than what many first-home buyers in both regions would have paid as a deposit.
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Tella Home Loans chief executive Andrew Chambers said brokers and banks were having some tough conversations with homeowners who wanted to upgrade their properties.
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“If they went to the bank at the moment, they would be back over that 95% [LVR] mark. They are having to sit tight for a bit because they haven’t got any equity there to play with.”
The best thing they could do was to continue to pay down their mortgage and wait for the market to pick up, Chambers told OneRoof. “It should start to slowly correct itself as the market slowly comes back up the other side.”
My Mortgage adviser Claire Williamson said she had been approached by more and more clients who had bought their first home in the last five years and now wanted to borrow more. She had three conversations about it last week alone.
However, instead of wanting to upgrade their existing house, they wanted to buy an investment property. She had tell them no. "They don’t have extra equity to leverage for a new property.”
She believed the renewed interest in rental properties was due to the changes in tax and lending rules announced earlier this year.
“In some situations, I’ve said, 'Look let’s consider whether it’s better for you to pay more down debt to grow your equity or to put some money into your property. Maybe there’s a little bit of money there and you can borrow $10,000 and do your kitchen or bathroom or paint or something and that’s going to add more value.'”
CoreLogic chief economist Kelvin Davidson said it was not surprising that homeowners who bought at the peak of the market at the end of 2021 had little or no equity.
My Mortgage mortgage adviser Claire Williamson is telling clients who want to buy an investment property that they can’t because they don’t have enough equity in their current property. Photo / Supplied
“If you bought with a 20% deposit, well your equity on average isn’t there anymore,” he told OneRoof. Some homeowners could have even dipped into negative equity. “The property market hasn’t gone anywhere for the last three years. If anything, it’s gone down.”
Those waiting for the market to return to peak could be waiting a while, he said. “If you are a recent buyer, it’s going to be tricky for a couple of years.
“I would be anticipating prices ticking up 5% to 6% each year for the next few years so it’s going to take two to three years to get back to the previous peak.”
However, he said it only impacted recent buyers because those who had owned a property for 15 to 20 years would still have equity.
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