First home buyers in NZ will suffer from the Reserve Bank’s surprise decision on mortgage deposits

The Reserve Bank of New Zealand’s decision to reduce the number of owner-occupiers that can get a mortgage with less than a 20 per cent deposit is set to have huge impacts on first home buyers, according to CoreLogic NZ.

The Reserve Bank of New Zealand (RBNZ) has reduced the share of owner-occupiers who can take advantage of the scheme from 20 per cent to just 10 per cent. CoreLogic NZ has suggested this will have a significant impact on first home buyers.

Amid the broader surge in property values, first home buyers were already often trying to find additional funds to purchase a spot on the property ladder. In June 2021, buyers paid about $150,000 more than the same time last year, CoreLogic noted.

In turn, the overall rise also meant an ever-increasing deposit hurdle, which some have been getting past by entering with less than the standard figure of 20 per cent.

More than than three-quarters of all owner-occupier lending done outside the 20 per cent deposit speed limit went to first home buyers in June, a figure that has steadily risen over time.

Put another way, 38 per cent of all first home buyer lending in June was done with less than a 20 per cent deposit. This exemption or speed limit has been a key support for first home buyer demand in the property market. 

But last week, the RBNZ announced their intention to reduce the cap for low-deposit owner-occupier mortgages from 20 per cent of lending flows to just 10 per cent.

The RBNZ has recommended the change start from 1 October, but CoreLogic has warned that banks may move earlier than that.

CoreLogic estimated that potential home buyers will have to find an additional $50,000 in Christchurch, $81,000 in Wellington or $90,000, according to average house prices.

Source: CoreLogic NZ

CoreLogic also identified which areas have a larger first home buyer market share so far in 2021. Kawerau was used as an example with 12 percentage-points above average (34 per cent so far in 2021 versus average of 22 per cent).

Put another way, these first home buyer ‘hotspots’ might feel the pinch a bit more than others.

CoreLogic indicated first home buyers may have to compromise on property type or location to get their foot on the ladder.

But the ability to purchase a property with a lower deposit than other buyers has clearly been a significant support for FHBs in recent times. CoreLogic indicated this may funnel even more demand towards new-builds.

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