More buyers with low deposits getting into housing market

Credit demand for housing continues to lift, growing 5.1% in the year to July.

In its latest housing update, the bank says lending to home borrowers on lower incomes appears to be rising, as is lending on properties to people without a 20% deposit.

Westpac says these trends are consistent with increasing housing demand as interest rates have declined.

“Anecdotally, mortgage advisers note the lower mortgage test rates now being applied is enabling a broader range of households to enter the market,” Kelly Eckhold, Westpac chief economist says.

The latest RBNZ data shows 1,336 low equity mortgages were approved to first home buyers in July, which is up by 47% compared to July last year. It also the highest ever recorded in a month in the RBNZ data series which goes back to 2014.

Low equity mortgages made up 44% of all the mortgages approved for first home buyers in July and the average size for a borrower with at least a 20% deposit was $533,800, while the average mortgage for first home buyers with less than a 20% deposit was $637,800

Eckhold says it’s useful to note that lower interest rates and more favourable taxation arrangements have also significantly boosted the value of investor housing, although recent weakness in rents likely provides an offset in many investors’ minds.

New Zealand's housing market "remains comatose" after the excesses of the Covid era, he says.

As a result, Westpac has lowered its forecast for house price increases this year to 0.6%, higher than the ANZ which is predicting a 0% increase.

Looking ahead, Eckhold says he expects a gradual lift in momentum to deliver house price growth of about 5.4% next year. 

“Demand for both owner-occupier and investor housing should strengthen as the broadening economic recovery – and crucially an upturn in the labour market – encourages the formation of new households, including migrant households.”

He says this should eat into the existing stock of unsold inventory and so reduce the current downward pressure on real house prices.

The forecast for 2026 has two-sided risks.

Low interest rates imply attractive valuations for investors. Hence, it’s unsurprising that credit demand by property investors is a leading driver of credit demand so far this year, albeit coming up from low levels, and that momentum could continue to build once the labour market improves.

Eckhold says the rental market is also oversupplied. Nationally in August listings surged 16% year on year, realestate.co.nz data shows.  

Notable increases included Wairarapa at 97.1%, Gisborne 82.4% and Hawkes Bay 69.2%. There was also a strong rise in Canterbury from a year ago of 29% to 917 properties.

On the other hand, Eckhold says population growth could remain slow, especially if the labour market takes longer to recover.

“A slower rate of household formation will likely mean less upward pressure on house prices, especially if the construction of new homes remains at current or higher levels.”