Recent housing figures from the Real Estate Institute of New Zealand (REINZ) show that first-time home buyers made up 41.1% of the 7,345 June sales. This is almost at par with the 41.5% of sales attributed to the same demographic back in May. It is predominantly in December and January of the last 7 years that first time home buyers have made up more than 40% of the housing market share. During these months, sales figures have historically proven quite low.
There has also been a marked improvement in the number of home loans being approved for first home buyers. Though this helps get more people on the property ladder, there is concern that it comes at a time when housing prices are at record high levels. The average housing price for first-time buyers was $683,000 in June. This means first home buyers are taking on substantial debt to buy homes and that more are likely struggling to come up with the necessary deposits.
This recent boost in first-time home buyers’ market share has been attributed to the low-interest rates driven by the government’s stimulus efforts during the pandemic in an attempt to prevent a recession. With mortgages being more affordable and employment at record lows, it has made it easier for first home buyers. But the good times may soon be over.
Although the Reserve Bank of New Zealand (RBNZ) has confirmed it will hold its official cash rate (OCR) at the same 0.25%, several major banks have already increased their interest rates on fixed-term mortgages. Westpac, BNZ, ANZ and ASB have opted to hike their rates on short and long-term mortgages. ASB was the first to announce its increased rates, saying it was in response to an improving economic outlook.
Depending on the size and duration of the loan, many borrowers are expected to have to pay hundreds to thousands of dollars more on their mortgage payments. The OCR has remained unchanged since 2014, helping those borrowing since then to secure low-interest rates to date. These borrowers are likely to be hardest hit by rising interest rates on sizable mortgages.
The OCR is however likely to be increased soon as one of the first steps in drawing the economy out of emergency support. Rising inflation is also likely to push the RBNZ to raise the cost of borrowing. Experts suggest that the housing market is close to its peak and will likely begin to ease in the coming months. While a downturn in the market is unlikely, experts believe sales activity and price growth should normalise as we enter into 2022.