Lending for low deposit mortgages rises

Latest Reserve Bank data show of the 2,477 mortgages approved for first home buyers in March, 750 (30.6%) were low equity loans.

Although the number of mortgages for first home buyers was up 7.7% compared to March last year, the figure is down by 26.7% compared to the December 2020 market peak when 3,338 were approved.

Low equity loans to first home buyers have been at about 30% since the middle of last year. Their number peaked at just over 40% in May 2020.

While the rest of NZ Mortgage’s business is quiet, founder and mobile mortgage manager, Nathan Miglani, says banks want to lend at low deposit loan-to-value (LVR) ratios as long as it is within their guidelines.

“Their policies are not bad. They are actually quite relaxed for buyers that qualify for a low deposit loan – a couple with combined income below $150,000 and a single buyer having income below $95,0000.”

Last week Miglani put together a deal for a couple buying a property for $740,000 on a $40,000 deposit. “It can be done and we are doing a substantial number within our business, but there are restrictions.”

At the peak of the market in December 2021, first home buyers were paying on average $717,681 for a home. Since then prices have declined and recent REINZ data show at the lower end of the market, the national selling price in March was $600,000 after dropping from a record high of $670,000 in November 2021.

Across New Zealand Mortgages’ business this year, 15% of mortgages have been refinances for a better deal and cash back offers of up to 1% of a property’s value (sometimes enough to pay the rates and insurance for a year), 25% for clients selling and buying, 50% for low deposit loans and the remainder for business and commercial loans.

Interest rates

Miglani says the biggest impediment to buyers are high interest rates, despite many people negotiating pay rises over the past two years.

ANZ in its latest Property Focus says mortgage rates on average across the four bigger banks have changed little this month and any tweaks have generally been falls.

With wholesale rates at the upper end of trading ranges seen year-to-date, those falls likely reflect more intense competition among banks as loan growth slows, Sharon Zollner, ANZ NZ’s chief economist, says.

“While that’s good news for borrowers, further and meaningful falls from here will likely require wholesale rates to fall, and given sticky inflation, that looks like a story for late this year or early next year, rather than an imminent prospect.”

While she continues to envisage lower mortgage rates, Zollner says they may not fall as quickly as needed for it to be cheaper to fix for, say, one year rather than two years.

“There isn’t much in it but given that middle-duration terms like two and three-years are already a lot cheaper than one-year, we still see some merit in fixing for a little longer, and potentially across a mix of terms.”

Big surge coming in properties for sale

Miglani says the Reserve Bank needs to start cutting the OCR as soon as possible as there will be a flood of properties hitting the market on July 2 – the day after the Brightline test is brought back from 10 years to two years.

Many of NZ Mortgages’ clients bought investment properties at the 2020-2021 peak of the market when mortgage interest rates were in the 2-3% range.

“Since then, the properties have made good capital growth, but the owners are now paying much higher interest rates and, in many cases, are having to top up their mortgages – some by as much as $500 a week. The rent they receive is nowhere near covering their expenses.”

Some investors bought a typical townhouse for $500,000 to $580,000. They are now worth $750,000 and Miglani says those with a mortgage just want out.

“These investors have still made money. They're not going to lose money. They'll be just selling, paying the mortgage off so they don't have to top up by $2,000 a month. When they sell, they won't have to pay any tax under the new Brightline test rules and won’t care if they make $80,000, $100,000 or $120,000 gains. They'll just be selling and then going for a holiday this Christmas.”