First home buyers struggle to get into housing market, as investors rush to beat tighter LVRs
The CoreLogic Buyer Classification figures for January are in and confirms what is largely felt anecdotally that first home buyers continue to struggle to get into housing market, as investors rush to beat tighter LVRs.
Last Tuesday the Reserve Bank announced that it would be bringing back loan-to-value ratios for banks with most investors required to have at least 30 per cent deposit by March 1 and 40 per cent by May 1.
Seasoned investors, it seems, have seen this coming a while ago, and had already stepped up their activity in the housing market already plaguing with a shortage of supply of houses driving house prices further and making it difficult for first home buyers to get into property ladder.
Mortgaged investors had a 30% share of property purchases, the highest month on record – reflecting a high number of purchases too, not just a dip by other buyer groups according to the CoreLogic Report released today.
The report also highlights that some of these purchases likely to have been ‘brought forward’ to ensure they avoided a 30 per cent deposit requirement (from 1st March).
It’s also interesting to note that the continued rise in activity by investors is coming from the smaller end of the spectrum, i.e. those that have just bought their first rental property or up to their third.
We suspect that these ‘Mum and Dad’ investors are more likely to have been the people most affected by the sharp falls in term deposit rates, or in other words the ones who have had the most incentive to ‘search for yield’ somewhere else.
They could also be using equity from their own property to get a rental.
Signs of fatigue amongst First Home Buyers
Meanwhile, with quickly rising house prices meaning an ever-larger deposit needs to be saved, there are now signs of fatigue amongst first home buyers. Their share of purchases dropped to 22 per cent in January, the lowest level since the first half of 2018.
Even though the first home buyers are able to tap their expanding KiwiSaver funds, the signs that first home buyers might finally be starting to struggle harder with ever-rising property values and hence deposit requirements are becoming clearer too
Why Reserve Bank’s tightening of LVR is good
Clearly, with investor deposit requirements now tightening, many will be wondering how the wider property market will be affected.
Based on what happened in 2017 (after deposits last hit 40% in 2016), it seems likely that mortgaged investors’ market share will decline this year and free up some opportunities for new FHBs to make a purchase.
The growth in property values is also likely to slow (also simply because of the wider affordability pressures in the market), but outright falls still seem off the cards for now.
One other effect of the loan to value ratio rules being reinstated is that they could divert some investor demand away from existing properties and towards new-builds (given the exemption for properties purchased while under construction or those recently completed).
The continued need for a higher overall supply of property means that this looks to be a good thing.
The CoreLogic Buyer Classification figures for January are in and confirms what is largely felt anecdotally that first home buyers continue to struggle to get into housing market, as investors rush to beat tighter LVRs.
Last Tuesday the Reserve Bank announced that it would be bringing back...
The CoreLogic Buyer Classification figures for January are in and confirms what is largely felt anecdotally that first home buyers continue to struggle to get into housing market, as investors rush to beat tighter LVRs.
Last Tuesday the Reserve Bank announced that it would be bringing back loan-to-value ratios for banks with most investors required to have at least 30 per cent deposit by March 1 and 40 per cent by May 1.
Seasoned investors, it seems, have seen this coming a while ago, and had already stepped up their activity in the housing market already plaguing with a shortage of supply of houses driving house prices further and making it difficult for first home buyers to get into property ladder.
Mortgaged investors had a 30% share of property purchases, the highest month on record – reflecting a high number of purchases too, not just a dip by other buyer groups according to the CoreLogic Report released today.
The report also highlights that some of these purchases likely to have been ‘brought forward’ to ensure they avoided a 30 per cent deposit requirement (from 1st March).
It’s also interesting to note that the continued rise in activity by investors is coming from the smaller end of the spectrum, i.e. those that have just bought their first rental property or up to their third.
We suspect that these ‘Mum and Dad’ investors are more likely to have been the people most affected by the sharp falls in term deposit rates, or in other words the ones who have had the most incentive to ‘search for yield’ somewhere else.
They could also be using equity from their own property to get a rental.
Signs of fatigue amongst First Home Buyers
Meanwhile, with quickly rising house prices meaning an ever-larger deposit needs to be saved, there are now signs of fatigue amongst first home buyers. Their share of purchases dropped to 22 per cent in January, the lowest level since the first half of 2018.
Even though the first home buyers are able to tap their expanding KiwiSaver funds, the signs that first home buyers might finally be starting to struggle harder with ever-rising property values and hence deposit requirements are becoming clearer too
Why Reserve Bank’s tightening of LVR is good
Clearly, with investor deposit requirements now tightening, many will be wondering how the wider property market will be affected.
Based on what happened in 2017 (after deposits last hit 40% in 2016), it seems likely that mortgaged investors’ market share will decline this year and free up some opportunities for new FHBs to make a purchase.
The growth in property values is also likely to slow (also simply because of the wider affordability pressures in the market), but outright falls still seem off the cards for now.
One other effect of the loan to value ratio rules being reinstated is that they could divert some investor demand away from existing properties and towards new-builds (given the exemption for properties purchased while under construction or those recently completed).
The continued need for a higher overall supply of property means that this looks to be a good thing.
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