Rule changes boost to first-home hopefuls
Despite anxieties around interest rates and how high they might go, lower house prices provide more room for optimism for first-home buyers, writes Miriam Bell.
Times remain tough for first-home buyers, but there have been recent market changes which experts say could help with the steep climb on to the property ladder.
House prices soared last year, and this, along with reinstated loan-to-value ratios (LVRs) for owner occupiers and the new Credit Contract and Consumer Finance Act (CCCFA) lending rules, led first-home buyers to step back from the market.
Interest rates have also been rising sharply, which impacts on the amount people are able to borrow, and cost of living increases are making it harder to save.
The combination of mortgage rates, inflation, income growth and house prices led economics consultancy Infometrics to brand this the toughest time to buy a house since 1957.
That’s because its analysis suggests people will have to spend a high proportion of their incomes through much of their working lives paying off mortgages on modern house prices.
But the market has turned, prices are no longer rising, and there have been official moves, including changes to the First Home Grants and Loans schemes, to help first-home buyers.
So could the market be shifting to favour aspiring homeowners just a bit more?
House prices are falling
New CoreLogic figures show prices dropped in half of the country’s suburbs over the past three months. The Real Estate Institute’s latest figures have prices in the Auckland and Wellington regions down 13.5% and 13% from their peaks in November and October.
Mortgage broker Campbell Hastie, from Hastie Mortgages, says price declines of 5% to 10% could knock $100,000 or more off the price of a house, and that can make a meaningful difference to the deposit and loan required.
Despite the attraction of lower prices, a widespread fear of overpaying (FOOP) seems to be holding people back. In economist Tony Alexander’s latest real estate agents survey, 73% reported encountering FOOP, compared to 19% in October. But Harcourts managing director Bryan Thomson says waiting until the market bottoms out is not a good strategy for an active buyer.
‘‘Changes happen quickly, the market could well turn again, and you might miss out. Inaction can be the theft of opportunity.’’
More options for first-home buyers?
As the market has eased, the amount of properties available for sale has surged up. That’s partly because sales activity has declined and properties are taking longer to sell.
There were a total of 26,301 homes on the market nationally in May, compared with 14,749 at the same time last year, according to Realestate.co.nz’s latest figures. It is an increase of 76.7%, and it has taken national housing stock to the highest level since 2019.
Thomson says the increase in
stock on the market means there is now more choice and greater opportunities for buyers.
If a buyer has the finance in place, the softer market is in their favour, Hastie agrees. ‘‘A wider range of options takes the pressure off, and they can be more picky. There’s scope to negotiate, and put in offers that would have been ridiculous 12 months ago when there was lots of competition.’’
But isn’t it hard to get a mortgage?
A tighter credit environment has been at play since last year, but the CCCFA responsible lending rules, which came into force in December, hit first-home buyers particularly hard.
Borrowers and mortgage brokers claimed the rules made the banks become ‘‘ultra conservative’’ and decline loans they would previously have made. This prompted the Government to make changes to the rules, and those changes will be in place from Thursday.
Century 21 New Zealand owner Tim Kearins says the lessening of the CCCFA’s stringent lending requirements should help put home ownership in reach for more people.
Hastie is not convinced the changes will make much difference as it is tougher debt servicing criteria, exacerbated by rising mortgage rates, which is the real problem for many.
‘‘But it is possible to work with banks to address concerns over someone’s spending patterns, and to find a solution, unless there are deeper problems. It just takes more time.’’
Government help
This year’s Budget did offer up more financial support to firsthome buyers. It came in the form of changes to the First Home Grants and Loans, which are available through Kā inga Ora.
House price caps for the First Home Grant were increased in many parts of the country to better align them with the current market, while they were removed from the First Home Loan entirely.
But the income caps were not changed, and many mortgage brokers say that is a problem.
Funding will also be available for an estimated 7000 additional First Home Grants and 2500 extra First Home Loans a year. Housing Minister Megan Woods says the changes will help thousands more first-home buyers. Kearins says the greater access to government assistance makes it slightly easier for people to cobble together a deposit, which is a boost to their motivation and chances.
Would it be better to wait?
Housing affordability has deteriorated to the worst level on record, with the average property worth 8.8 times the average income at the end of last year, according to CoreLogic’s latest housing affordability report.
The generally accepted definition of ‘‘affordable’’ is house prices of three times the median income. Massey