Lending boost for new buyers

The relaxation of lending restrictions for purchasers with smaller deposits has delivered a major boost for first-home buyers, who have taken up the lion’s share of newly-permitted lending this year.

Since January, banks have been allowed to make as much as 20% (up from a previous limit of 15%) of their new residential mortgage lending to owner-occupier buyers with a deposit of less than 20% of the value of the home they’re buying.

The market is now watching for the possibility that the Reserve Bank will further relax these restrictions when it releases its next financial stability report in late November.

Out of the just over $4 billion of lower-deposit lending – with a higher than 80% loan-to-value ratio (LVR) – between January and July this year, first-home buyers have taken up more than two thirds ($2.7 billion).

This is more than double the share that has gone to other owner-occupier buyers who are typically moving home, according to figures from the Reserve Bank which give a monthly breakdown of mortgage lending by borrower type.

Growing a slice of the bigger pie

In July alone, first-home buyers took up $447 million of this category of lending. This represented a rise of nearly two-thirds (60%) since January – more than double the 27% increase that was recorded over this period by other owner-occupier buyers.

Total lending across all LVR ranges in July to those buying a home for the first time reached more than $1 billion, and was up by a half over the past six months.

While recent signs also point to improving fortunes for investors in residential rental properties, the proportion of lower-deposit lending that goes to investors is small. This reflects the fact that under current Reserve Bank restrictions the vast majority of residential property investors need a deposit of at least 30% before they become eligible for home lending.

July figures from property data specialists CoreLogic show that first-time buyers’ share of the home-buying market is at an historically-high level, with this group now accounting for nearly one in every four purchases nationally. CoreLogic says this reflects favourable factors such as their access to KiwiSaver accounts for a deposit and a growing willingness to compromise on the location or type of property they are prepared to consider buying.

Bayleys Research manager Ian Little says first-home buyers’ strong showing in the housing market reflects a number of tailwinds, with easier access to money via the relaxed LVR lending rules this year, along with lower interest rates, prominent among them.

“The easing of the Reserve Bank’s LVR speed limits on home lending means that a greater number of buyers now have an opportunity to purchase with a lesser deposit than they would have needed in recent years – and this has been particularly helpful for first-home buyers trying to scrape together their first deposit.

Viable deposit, cheaper repayments

“The relaxed lending rules, along with an ability among some buyers to access their KiwiSaver accounts to help fund a first-home deposit, is helping to bring a viable deposit – and therefore a home purchase – within reach for more buyers,” says Little.

“Meanwhile, a flattening of price activity in some markets, particularly Auckland and Christchurch, is also helping to improve housing affordability generally.”

On top of this, Little says that home buyers of all types are continuing to reap the significant ongoing benefits of more affordable mortgage repayment costs thanks to an extended period of historically-low borrowing rates.

“In combination, all of these factors in the market are currently delivering a significant boost to the prospects of many who are striving to get a foothold on the housing ladder,” he says.

“A number of these positive market influences are likely to remain in play for an extended period of time, with the possibility of an additional lift for buyers in the form of a further loosening of LVR lending rules which could come as soon as the latter part of this year.”

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