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Lending faucet turns off: First-time homebuyer market share shrinks

Corelogic says investors with cash are likely to become more influential in the market.


Corelogic says investors with cash are likely to become more influential in the market.

The new lending rules appear to be driving first-time home buyers away from the housing market, according to property data firm CoreLogic.

Its buyer classification data for January shows the share of first-home purchases fell from 26% of the market at the end of 2021 to 24% in January.

Since December 1, all lenders have had to adhere to new, stricter restrictions designed to ensure that borrowers can pay their loans. Candidates and brokers have complained that it has created a “credit crunch” where people have been turned away who would have previously secured a mortgage.

At the same time, loan-to-value restrictions have reduced the amount of low-deposit loans banks can make to homeowners to no more than 10% of new loans, down from 20% previously.

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Data from credit reporting agency Centrix showed the percentage of home loan applications that turned into approvals fell from 39% in October to 30% after December. Bank bosses have estimated that around 7% of loans that would have been approved before December are turned down,

“It’s hard to disentangle the two influences, but what’s clear is that new buyers are hampered by tighter credit policies,” said Corelogic’s chief real estate economist, Kelvin Davidson.

“FHBs were still likely to be hit by the LVR speed limit halving, given that they were the main users of the previously higher allowance. And this has now been compounded by CCCFA changes that do not allow lenders to assume that a borrower will tighten their spending after getting a loan in order to meet their repayments.

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The market share of first time buyers fell in Auckland, Wellington and Christchurch, but Hamilton’s share remained stable and the proportion of first time buyers increased in Dunedin and Tauranga.

Mortgage investors made up 24% of the market, which Davidson said was where they had been since the middle of last year. At the start of 2021, they represented 30% of purchases.

“Tough LVR rules and the phasing out of interest deductibility, along with the tricky mix of low gross returns and rising operating costs such as mortgage rates, appear to be dampening investor demand,” Davidson said.

He said cash investors, who currently make up 12% of the market, could play a bigger role this year when reduced competition for a wider selection of listings works in their favor. People who don’t need to apply for a loan to buy a property should have an advantage in an environment where credit criteria are tighter.

“We expected homeowners or “movers” who move to also increase their market share this year, as increased listings begin to give them more choices. Recently they renovated and not moved because low inventory on the market meant they couldn’t find their next ideal property. This was indeed a feature of the January data, with movers’ market share rising from 27% at the end of 2021 to 30% in January.

“Of course, a single month of data does not necessarily mark a definitive new trend, and the reduction in the gross number of sales is also a reason for caution when analyzing market share figures. However, the balance of probabilities still suggests that we are at a turning point for the real estate market and that the composition of buyers will be different this year.

“FHBs won’t like the tighter credit environment, but many may still find a way to buy using KiwiSaver for a deposit and compromising on location/property type. “