NZ first home buyers struggling to get a mortgage

First home buyers in New Zealand are struggling to get a mortgage with tighter lending requirements and rising interest rates squeezing borrowers, according to a leading expert.

CoreLogic New Zealand’s Chief Property Economist, Kelvin Davidson said the latest lending figures from the Reserve Bank of New Zealand show a sharp decline in high loan-to-value ratio (LVR) loans to first home buyers (FHBs).

“The figures show that low-deposit FHBs continued to have a tough time in February, with just 22 per cent of all lending to FHBs going out at less than a 20 per cent deposit,” Mr Davidson said.

“It wasn’t long ago that this figure was more than 40 per cent.

“One obvious reason for this is simply that the LVR rules were tightened on 1 November, and FHBs were previously the key users of the higher speed limit.”

The current speed limit in New Zealand caps owner occupier loans with less than a 20 per cent deposit to 10 per cent.

Mr Davidson said there are currently a number of other headwinds for borrowers across New Zealand, with a high percentage of fixed term loans due to be refinanced in the months ahead.

“The share of loans that need to be refinanced this year (51 per cent) is still pretty significant, and these borrowers are going to be rolling off lower rates into a rising interest rate environment,” he said.

According to Mr Davidson, lending levels will likely continue to decline along with transaction activity in the face of higher interest rates.

“In all likelihood, it’s going to remain a restricted environment for mortgage activity in the coming months too,” he said.

“CCCFA (the Credit Contracts and Consumer Finance Act) is set to be eased, which will help. And the news-flow from the banks suggests that the almost-blanket ban on low deposit loans in the past few months has now started to loosen too. 

“In addition, we’ve also heard that self-imposed debt to income ratio guidance at some of the banks is being removed.

“All that said, there’s no escaping the fact that mortgage rates have risen and are set to increase further – by identity, reducing the amount of debt that a borrower can reasonably service. 

“The bottom line is that 2022 will be a softer year for mortgage lending, property sales, and values.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.