First home buyers are dropping out of the market faster than house prices are falling due to the tighter lending rules and higher interest rates.
And higher mortgage servicing rates have put a halt to purchasing plans or severely reduced the amount the amount buyers can get banks, with one broker telling OneRoof a client’s borrowing power had been slashed by $30,000 in the space of three months.
First home buyers’ share of purchases made in the first three months of this year was 22.5%, down from 26% in the second-half of 2021, according to new figures from CoreLogic.
The actual number of purchases by first home buyers in the three months to the end of March this year was the lowest it's since 2014, while the proportion of first home buyers in the market for the same period has tumbled to 2017 levels (barring the initial lockdown period in early 2020).
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CoreLogic chief property economist Kelvin Davidson warns the number of first home buyers active in the market could slide further this year, even though house prices are weak and more stock is on the market.
He says rising interest rates and tighter lending rules have prevented man Kiwis from taking advantage of the clear shift to a buyer’s market.
It’s not the case of them not wanting to buy, more that the banks won’t let them, he says.
“Indeed, the halving of the loan-to-value ratio speed limit for owner-occupiers from 20% to 10% in November last year has significantly hampered first home buyers. Changes to the Credit Contracts and Consumer Finance Act have not helped either.”
The Government has promised to ease in June the strict lending rules imposed by the CCCFA, but there is concern within parts of the industry that the changes might not go far enough, Davidson says.
According to CoreLogic’s First Home Buyer Report, the median price paid by first home buyers in the first quarter of 2022 was $752,007, up from $680,000 in 2021. The median price for all purchases this year was $860,000.
CoreLogic chief economist Kelvin Davidson: “Changes to the Credit Contracts and Consumer Finance Act have not helped.” Photo / Peter Meecham
The report said that median price paid by first home buyers over the past four to five years was around 91%-92% of the median price paid by all buyers, but in 2022, the ratio dropped to 87%, a sign that first home buyers haven’t been able to keep pace with the wider market.
The report found that in every major metro the proportion of first home buyers had dropped from peak levels and that the median price for first home buyers was below median price for all buyers. The gap was biggest in Auckland, where the median price paid by first home buyers in the first three months of the year was $1.04 million, $219,000 below the overall median for the city.
The median for first home buyers was $890,000 in Wellington, $800,000 in Tauranga, $750,000 in Hamilton and about $600,000 in Christchurch and Dunedin.
Mortgage broker Sara Hartigan, who runs the Umbrella Company, agreed there had been a significant drop in the number of first home buyers in the market.
For some of her clients, the combination of the tighter CCCFA rules, increasing interest rates and the rise in test rates, which measure a person’s ability to repay a loan, meant they could no longer get a mortgage, or had reduced the amount they could borrow.
REINZ chief executive Jen Baird: “Owner-occupiers are the most present and active in the market.” Photo / Fiona Goodall
“Every time a test rate jumps up, it diminishes the amount of affordability somebody has,” she says.
Just this week she put in an application on behalf of a couple for a home loan, and the amount they could borrow had dropped $30,000 in three months.
“It has pushed some people out of the market absolutely because the prices of home aren’t dropping as fast as the cost of living is rising. We are not at equilibrium yet. There’s been a slight drop in property prices, but nothing compared to the (interest) rates going up.”
Hartigan expects the housing market to continue to drop within the next six months, but says those wanting to get on the property ladder need to get on top of their money management.
“Banks are really looking for clean bank statements that show they are good with their money, they’ve got a savings history – that sort of thing. They just need to be responsible borrowers.”
Real estate agents across the country are also noticing a distinct lack of first-home buyers because they can’t get the borrowing.
REINZ chief executive Jen Baird says the tighter lending criteria, LVRs and increasing interest rates coupled with inflation continue to create challenges for some buyers — particularly first-home buyers and investors.
“Owner-occupiers are the most present and active in the market, so while we see a softening in the mid to low price range, interest is solid in the mid to high bracket.”
