'Next home buyers', first home buyers more active
The latest Reserve Bank of New Zealand figures showing a 6.8% annual increase in the value of new residential mortgage lending reflect what is happening in the market, says a mortgage adviser brokerage
Meanwhile, separate figures show total debt levels for housing have increased 3% annually, which points to overall growth in lending across banks and non-banks.
Eugene Bartsaikin (pictured above) director and mortgage adviser at Twine Financial Advisers, said that over the period of September 2022 to August 2023, his brokerage experienced 5.9% growth in settlements compared to the same period in 2021/2022.
“In our business, there has been a noticeable change over the past 12 months, with investors almost entirely dropping off, replaced with more 'next home buyers' upgrading their homes and slightly more first home buyers now that the entry price is lower,” Bartsaikin said.
The RBNZ August figures show that new mortgage commitments reached $5.8 billion in August, up 15.7% compared to July, and up 6.8% (from $5.4bn) in August 2022.
Total lending for housing reached $352bn, up 3% compared to August 2022 ($341bn).
Mortgage values increased across all loan purpose types, on both a monthly and an annual basis, RBNZ figures showed. Lending to first home buyers reached $1.4bn, up 21.7% year-on-year (up 10.5% month-on-month), while lending to investors reached $986m, up 9% year-on-year (up 15.6% month-on-month).
Lending to ‘other owner occupiers’ (people other than first home buyers who own or are in the process of buying or building a house or flat they will live in), reached $3.3bn, up 17.5% month-on-month (up 0.6% year-on-year).
Noting that total residential mortgage lending of $5.8bn included refinances, Bartsaikin said that refinances represented 20% of his business over the last 12 months – up from 16% the prior year.
“This has mainly been driven by a desire to get better interest rates and get the market competing for business,” he said.
First home buyers “cautious but optimistic”
While the value of mortgage commitments to first home buyers increased over August, RBNZ figures showed that first home buyers’ share of new mortgage commitments fell to 23.7%, down from a record high of 24.8% in July.
Bartsaikin noted that RBNZ figures showed first home buyers held 17% share of new mortgage commitments in August 2021 and 20% in August 2022, indicating an upward trend in first home buyer activity.
He also noted that the increase in entry level buyer activity had come at a time of rapid monetary policy tightening which had seen interest rates more than double, while income growth lagged behind.
“The first home buyers I'm working with are taking a cautious but optimistic approach toward their purchases,” Bartsaikin said.
“Many are now less likely to spend at the top of their budgets and that's a good thing for home owners, as mortgage repayments are only one component to being a home owner.”
Owner-occupiers re-entering market
In line with RBNZ figures showing that the share of lending to owner occupiers (57.8%) had increased month-on-month (down year-on-year), Bartsaikin said that he had seen a “substantial increase” in demand from existing owner occupiers looking to buy their next home.
“In a calmer market, buyers are able to place conditional offers and they would be genuinely considered. This was easiest earlier in the year, but we're still seeing plenty of homeowners doing so,” he said.
RBNZ figures showed that the share of lending to investors remained steady at 17.1% but had increased slightly year-on-year.
Bartsaikin said that within his business, investor activity was almost double that of the previous quarter, noting that in the majority of cases, these were clients who had previously committed to buy new build homes.
As a number of investors have bought new build properties prior to the completion date, due to the lag in construction activity, the timing of investor activity is difficult to capture accurately, he said.
In one example, his business had just settled a loan for an investor who had signed up to a property over two years prior. The investor had an original loan approval that had long expired and was seeking approval for a new loan. Bartsaikin said the investor was unable to on-sell the property at the purchase price and had reluctantly decided to proceed with settlement.
Noting that the investor’s interest cost had dramatically increased (interest rates were under 3% at the time the contract was signed), Bartsaikin said that he expected a reasonable number of investors who purchased under these circumstances would now be in a similar position.
RBNZ August figures showed that the average value of new mortgage commitments across all borrower types rose to $362,500, and that the average value for first home buyers was $551,400.
There were 15,952 new mortgage commitments by NZ registered banks, up 15.6% compared to the month prior, up 5.6% year-on-year.
Are you seeing more demand for new lending and which buyer groups are most active? Share your thoughts in the comments section below.
