OneRoof’s Frances Cook speaks with Mortgage Lab founder Rupert Gough about the new loan-to-value restrictions and the impact that higher deposit requirements for investors will have on the housing market.

First-time homebuyers buy more homes, but are also at greater risk if interest rates rise and add thousands of dollars to their mortgage payments.

That’s according to CoreLogic analysts, who said investors had bought fewer homes recently, which in turn helped first-time homebuyers to get a bigger share of the property again.

Investors now buy about 25 percent of homes sold across the country, up from a high of 28 percent last year, while first-time buyers buy 24 percent, up from 21 percent.

But while this may be good news for first-time home buyers, CoreLogic has warned that it is new home buyers – those with the largest home loan debts – who would likely feel the greatest pain if the forecast increases. rates were being realized.

Many would also be in uncharted waters, given that anyone who bought after 2014 had never seen interest rates drop, said Kelvin Davidson, chief real estate economist at CoreLogic.

“So the effects of a series of (rate) hikes will likely be a shock to many,” he said.

This trend of rising rates and slowing house price growth in recent months could mark a “significant turning point” in the housing market, CoreLogic said, with some experts warning that the era of ultra-money cheap could be coming to an end.

New buyers are spending so much to buy homes in Wellington and Auckland that the size of their debts could make them vulnerable to rate hikes.  Photo / 123rf
New buyers are spending so much to buy homes in Wellington and Auckland that the size of their debts could make them vulnerable to rate hikes. Photo / 123rf

The era of super-cheap money came after New Zealand officials, like many other governments and central banks around the world, responded to the start of last year’s Covid-19 pandemic by trying to stimulate the economy to stave off fears of a recession.

One of the key measures was to encourage banks to lend money to the public at lower interest rates.

It sparked an unexpected boom in the housing market as homebuyers jumped at the chance to use cheap money to buy, causing house prices to skyrocket 20-30% in one year. .

Now that inflation is creeping into other goods, such as food and oil, economists expect the Reserve Bank to increase the cost of borrowing.

The big four banks – ASB, ANZ, BNZ and Westpac – have already responded to the spike in inflation by raising their mortgage rates last week.

Davidson of CoreLogic said the Reserve Bank could increase the official cash rate from a record high 0.25% to 1.5 percentage points.

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He said the Big Four banks’ rate hikes last week will lead a typical recent buyer to pay an additional $ 1,824 per year ($ 152 per month) in mortgage payments on their $ 800,000 30-year mortgage.

If interest rates continued to rise and hit the long-term average of 6%, then that same new buyer would pay an additional $ 19,164 in mortgage payments per year, or $ 1,597 per month.

“Even a new borrower with a lower mortgage, say $ 500,000, will have to find an additional $ 246-388 per month ($ 2,952 to $ 4,656 per year) in repayments if rates go up to 3.5% or 4.” Davidson said.

ASB previously estimated that a 1 percent hike in mortgage rates could potentially take $ 3 billion out of the pockets of mortgage holders each year.

First-time homebuyers are taking more homes across the country.  Photo / File
First-time homebuyers are taking more homes across the country. Photo / File

Davidson said on the bright side, unemployment was low.

“As long as people stay at work, most people will be able to absorb a hike in interest rates. I don’t think it will cause a collapse, but it will take people to adapt,” a- he declared.

For those still trying to buy their first home, possible rate hikes will add another hurdle.

Owen Vaughan, editor of NZME-owned ads site OneRoof.co.nz, said first-time homebuyers in Auckland and Wellington are often stretching their budgets so far, little remains. money available.

“Fewer than 50 Auckland suburbs have median real estate values ​​below $ 1 million, and only two, Auckland CBD and Rakino Island, have values ​​below $ 600,000,” he said.

“Five years ago, buyers could expect to buy a home for less than a million dollars in more than 50% of Auckland’s suburbs.”

It comes as the Herald’s recent Home Truths series shed light on just how unaffordable housing has become.

A typical Kiwi house now costs eight times the typical annual income of a household, while in Auckland it costs nine times the income, said CoreLogic and fellow analysts Infometrics.

A combined force of rising interest rates and pressure on investors could further slow house price growth, CoreLogic analysts say.  Photo / File
A combined force of rising interest rates and pressure on investors could further slow house price growth, CoreLogic analysts say. Photo / File

The latest report from Interest.co.nz’s financial publication on Home Affordability says it takes a typical 25 to 29-year-old couple nine years to save a 20% deposit on an “affordable” home. ‘Auckland of $ 865,000.

A Herald-Kantar poll last month found that nearly two-thirds of New Zealanders were so concerned about the challenges facing new home buyers that they believed house prices should come down.

A new survey of 500 people commissioned by life insurer OneChoice also just found that eight in ten respondents (83.4%) think the dream of owning a home is no longer attainable for the average Kiwi.

This includes four in five house hunters (79.1%) who feel excluded from the real estate market.

Loan Market Mortgage Advisor Bruce Patten said homeowners and successful first-time homebuyers might look to set 2 to 3 year interest rates if they wanted security and safety. peace of mind.

Yet the shorter terms were still at the lowest rates in 20 years, he said.

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Source: www.nzherald.co.nz
This notice was published: 2021-07-22 17:00:00

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