Editorial: Welcome to your Kiwi dream, first home buyers: Help yourselves, but not too much

First home buyer lending is rising. Photo/Chris Loufte

Opinion

EDITORIAL

First home buyer mortgage lending is growing at such a pace that this most worthy category of the market could regularly be borrowing around $1 billion a month to fund the dream if recent trends continue.

Reserve Bank new mortgage registration data reveals positive news for these buyers who various governments have tried to help. KiwiSaver, low interest rates, high employment and Auckland's flat market have undoubtedly helped them on to the property ladder.

First home buyers borrowed just $630 million a month back in April, 2017 but lending to this group has been increasing steadily lately.

By April last year, borrowing hit $868m/month. After that, first home buyers cracked their own glass ceiling twice, borrowing more than $1b/month in two short periods last year.

The first time was last May when they borrowed $1.1b and then again in November when they got $1.02b.

The portion of mortgages going to more highly geared households has fallen lately to the point where, if this continues, the number of highly indebted households will drop - a good thing for any economy

By March this year, borrowing had dropped back to $999m/month, tailing back slightly to $964m/month by April this year.

The data is somewhat lumpy so a slight fall lately is of little concern, given the overall upward and growing trend.

James Wilson, valuation and innovation director at Valocity, noted the change in Monday's OneRoof Property Report using Valocity's own data to calculate the first home buyer share of the market.

"First home buyers have steadily increased their share of the market and now account for 29.3 per cent of all new mortgage registrations," Wilson said.

He cited a decreased competition from investors as part of the reason for first home buyer growth, along with historically low interest rates. Net migration numbers remained high and there has also been a rise in new house consent numbers, he noted.

The Reserve Bank data shows landlords still regularly outstrip first home buyers when it comes to borrowing and that situation hasn't changed much at all: investors accounted for $1.13b/month of new mortgages in November 2017, and remained steady to borrowing $988m/month in April.

Landlords have been borrowing around $1b/month for the past two years. Lack of a capital gains tax has been cited by Crockers as one of the reasons they are considering expanding their portfolios.

Total lending to all mortgagees has remained relatively stable since November 2017 at around $5b/month.

Heartening as it may be for first home buyers, the Reserve Bank sounds a warning.

"Domestically, debt levels are high in the household and dairy sectors, leaving borrowers and lenders exposed to unanticipated events," the central bank said on May 29.

Debt to income ratios for the household sector are now at a record high, despite the growth of debt slowing slightly in the past year, the bank has noted.

Fortunately, the portion of mortgages going to more highly geared households has fallen lately to the point where, if this continues, the number of highly indebted households will drop - a good thing for any economy.

"Despite the growth of house prices slowing in the past year, national house prices remain at historical highs. House prices in Auckland have declined slightly, reducing the likelihood of a large and disorderly price fall," the bank says.

Many New Zealand households and dairy farmers have high debt levels and would struggle if their incomes fell or costs rose.

Banks would face big losses, particularly if house and dairy farm prices plummeted.

So first home buyers, help yourselves. But be careful. Do all you can to ensure you survive the bad times, as well as the good.