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First home buyers are still enjoying market conditions

Further cuts to the official cash rate seem all but certain.

Last updated: 7 October 2024


Given that the economy remains sluggish and inflation is trending lower, further cuts to the official cash rate seem all but certain in the coming months, with associated downwards pressure on mortgage interest rates. That will help owner-occupiers to start relocating a bit more, and also pique the attention of some investors too. After all, as mortgage rates drop, the top-up required out of other income that’s currently required to keep a typical rental property purchase going on a week to week basis will shrink – helped by mortgage interest deductions heading back towards 100%.

But lower mortgage rates will obviously also support for first home buyers (FHBs); a group who are already doing pretty well in the current market conditions. Indeed, since the second quarter of last year, their % share of property purchases has been 25% or more, and across July and August this year has edged up even higher to 27% – a new record high. In addition, the number of FHB deals has also been pretty resilient.

Across each of the main centres, FHBs’ % market share has recently been running in the high 20’s or even early 30’s, but regional areas have also seen solid activity too. Invercargill, for example, has had a 31% market share for FHBs so far in 2024, with Palmerston North and Rotorua both at 30%. Into South Waikato, as an example, the figure has also topped 30%.

So what’s going on for FHBs? Clearly, access to KiwiSaver for at least part of the deposit is a good start (especially if two or more people are joining their funds together), even without the extra assistance that was previously often possible via the now-extinct First Home Grants system.

FHBs also continue to show a willingness to compromise on the property type and/or location, such as looking for a townhouse further away from city centres, rather than perhaps looking for a standalone house close to town. This clearly means more scope to get a cheaper entry point.

Meanwhile, although I don’t think it’s ever particularly helpful to portray FHBs and investors as being in some kind of battle with each other for access to the housing market (we actually need both groups!) it’s nevertheless true that conditions aren’t that easy for investors at the moment, meaning a clearer runway for FHBs to purchase the properties they want; especially in a market where available listings (buyer choice) are sitting at multi-year highs.

In addition, FHBs are making full use of the low deposit (or high loan to value ratio) lending allowances at the banks – i.e. 20% of loans to owner occupiers can be done at less than 20% deposit, with new-builds exempt too. Indeed, in August around 80% of the overall low-deposit allowance for owner-occupiers actually went exclusively to FHBs, or put another way, nearly 45% of FHB loans were done at low deposit.

In other words, the past couple of years (with house prices still down significantly from their late 2021/early 2022 peak) have been favourable for FHBs, or at least those that have been able to afford and secure their finance. And I suspect that the window of opportunity is still firmly open, especially as mortgage rates continue to fall. Sure, it still won’t be easy for many FHBs (it never has been), and lower interest rates will also start to bring back some other buyers too.

But there’s still a strong desire in NZ for people to purchase their own home, and it seems likely that FHBs will continue to find a way, provided that job losses don’t become too widespread.

Author

Kelvin Davidson
Kelvin Davidson

Chief Property Economist, CoreLogic - corelogic.co.nz

Kelvin joined CoreLogic in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.

In his role with CoreLogic Kelvin’s focus is on keeping up to date with what’s going on in the property market and continually finding different ways for viewing and interpreting it. Kelvin’s economics background means that he knows his way around a spreadsheet, but more importantly he always puts more emphasis on providing the key insights and telling a story, whether his audience be clients or the media.