What’s happening with first-time home buyers in New Zealand?

by Roxanne Libatique18 May 2021

The government’s housing package, launched in March, couldn’t have come soon enough as first-home buyers’ (FHBs) share of purchases in New Zealand has declined for the past three to six months, according to CoreLogic’s latest report.

The CoreLogic First Home Buyer Report for Q1 2021 revealed that FHBs’ market share dropped from 24.8% six months ago to only 21.5% in Q1 2021 – the lowest level since Q1 2018, hinting at “fatigue” and a growing struggle to keep up with other buyer groups, along with rising deposit requirements and property values.

However, data from CoreLogic and Equifax showed that the average age of FHBs has not risen markedly in recent years. After dropping from 35 to 34 in 2017, the national average has been consistent – with FHBs at 35 years old on average in Auckland; 34 in Wellington and Tauranga; and 31 in provincial areas such as Manawatu, Masterton, Rangitikei, and Timaru, where property values are generally lower and affordability measures less stretched.

Based on the data, CoreLogic chief property economist Kelvin Davidson (pictured) said the government’s new housing package was well-timed, helping FHBs and discouraging leveraged investors from buying existing properties.

“Among the possible reasons for the average age of FHBs holding steady, despite growing affordability pressures, are earlier access to larger KiwiSaver pots, a willingness to move further afield or look at different or cheaper property types, as well as help from parents or family. FHBs may also have begun to save earlier than in the past,” Davidson said.

Historically, FHBs’ share of purchases took a hit at certain times from loan-to-value ratio (LVR) restrictions, according to CoreLogic.

“Owner-occupiers are currently required to have a 20% deposit, although the banks can, of course, make use of the Reserve Bank-mandated speed limit and allow up to 20% of owner-occupier loans (including FHBs) to be made at less than a 20% deposit,” Davidson said.

“On that note, there is evidence that some would-be FHBs have become so disenfranchised or discouraged that they are giving up on buying - but based on mortgage data showing that about one-third of FHB loans in March 2021 was done at less than a 20% deposit, many would be well advised to pursue their options with a mortgage adviser or bank. There is more flexibility in the lending market than many may think.”

Across New Zealand, houses accounted for 75% of FHB purchases in Q1 2021, down from 77% in the calendar year 2020. However, that was still higher than the latest figure for all buyers of 72%. Flats accounted for 16% of FHB purchases, versus 13% for all buyers, while lifestyle for all buyers (7%) outweighed that category for FHBs (3%).

Davidson warned that FHBs might face more competition for new-builds despite government intervention potentially freeing up opportunities for FHBs to access existing properties with less competition from leveraged investors.

“It is currently cheaper for an FHB to pay the mortgage, excluding other ownership costs such as rates and insurance, than to rent in Christchurch, with only a +$44 gap in Dunedin. Nationally, it costs $101 more per fortnight for an FHB to pay their typical mortgage than to rent,” Davidson added.

“Looking at the big picture, we had dubbed 2019 the ‘year of the first home buyer’ (FHB), and 2020 the ‘year of the investor’, but that didn’t detract from FHBs still faring pretty well in 2020 when their percentage share of purchases rose to a record high of 24.8% in Q3. Since then, however, the sheer weight of investor demand in the market that has continued into 2021 has seen FHBs’ market share dip back to 21.5%.

“Clearly, investors/landlords are vital to a well-functioning property market, but we certainly agree that accessibility for first-home buyers is also critical.”

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