It's now slightly easier for aspiring first-home buyers to buy their own home – here's why

Falling house prices offset the effects of rising interest rates for first-home buyers in May

It's now slightly easier for aspiring first-home buyers to buy their own home – here's why

With the benefits of declining house prices at the bottom of the market marginally outweighing the effects of rising interest rates, it has become slightly easier for first-home buyer hopefuls to get onto the property ladder.

Read more: First-home buyers' withdrawal from market eases as govt announces tweaks to lending law

According to Interest.co.nz’s Home Loan Affordability Report for May, the Real Estate Institute of New Zealand’s national lower quartile selling price fell from $640,000 in April to $628,000 in May.

That meant a slight reduction in the amount required for a 20% deposit on a lower quartile-priced home, from $128,000 to $125,600; and a nearly 10% reduction in the amount that would need to be borrowed for an 80% mortgage, from $512,000 to $502,400, Interest.co.nz reported.

Read next: “Another bloodbath” as house prices slump again in May

However, most of the savings that should have been pocketed from a smaller mortgage were eaten up by higher interest rates.

Assuming a 20% deposit, the average of the two-year fixed mortgage rates charged by the major banks increased from 4.96% in April to 5.10% in May. That resulted in a 20% drop in the mortgage payments on a lower quartile-priced home, from $631 in April to $629 in May.

But while the drop in house prices in May made it slightly easier for first-home buyers to put together a deposit, the effects of declining house prices on their mortgage payments were almost entirely offset by higher interest rates, Interest.co.nz said.

So, first-home buyers came out just a tiny bit ahead.

The effects of changing market conditions on first-home buyers have been more mixed over the last six months.

The REINZ’s national lower quartile house price peaked at $670,000 in November last year, and since then has declined by $42,000 to $628,000 in May.

That slashed off $8,400 from the amount needed for a 20% deposit, although raising $125,600 for a 20% deposit will still likely be beyond the reach of many.

The amount needed for an 80% mortgage fell by $33,600 between November and May, from $536,000 to $502,400.

The same period saw the average of the two-year fixed mortgage rates increase from 4.08% to 5.1%, which pushed mortgage payments up from $596 a week to $629.

So, the trend emerging for first-home buyers is that house prices at the bottom end of the market are falling, reducing the amount needed for a deposit and to borrow, while increasing interest rates are pushing up their likely mortgage payments.

With interest rates continuing to rise at a substantial clip, the trend could potentially continue into the short to medium term, unless house prices start falling at a much greater pace than they are currently, Interest.co.nz said.

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