Trapped on bottom rung

We hear a lot about how hard it is for first home buyers to get into the housing market and how investors are taking an ever-increasing share of Auckland house sales, but what about those who have bought their first home and want to move to a larger one?

The latest QV House Price Index shows home values continue to accelerate across Auckland, up on average by 4.7 per cent over the past three months and 16.1 per cent year on year -- the average value is now $975,000.

One of the results of rapidly rising home values in Auckland is that it has become increasingly difficult for those who are living in their first home to sell it and take the next step up the property ladder to a larger home -- to house a growing family, for example.

The latest CoreLogic Buyer Classification data shows the percentage of sales to "movers" -- those who own one home, which they sell to "move" to another has dropped from 28 per cent of all sales in Auckland in mid-2012 to 23 per cent in mid-2016. Sales to multiple property owners (investors) have jumped from 35 per cent to 46 per cent over the same period.

In practice what this means is there are fewer people who can afford to sell their first home and buy a bigger home, or sell and move suburbs to be closer to jobs or schools or family.

Here's why. In July 2012 the average value of a home in the Auckland region was $570,000. If you had put down a 20 per cent deposit of $114,000 and raised a mortgage of $456,000 over a 25-year term, your mortgage would be about $400,000 today.

Let's assume you sold your first home for the average of $975,000 and made about $405,000 in capital gain.

About $35,000 of this would go to the real estate agent, lawyers and the bank; so let's say you end up with a deposit of $370,000 for your new larger home.

To upgrade you will need to purchase a home for more than $1 million to get something larger than the home you already own.However, that deposit will leave movers facing a mortgage of around $700,000.

Repayments on a 25-year mortgage at 5.65 per cent would be $4362 a month.

With wages not having risen at the same rate as home values, the couple may find that servicing a mortgage that size is a step too far and they may have no option but to stay put and make do.

Meanwhile, for an investor, they are able to get rental income from tenants per bedroom as well as write off, for tax purposes, any repairs and maintenance and interest paid on the property -- all of which makes it easier for them to service a large mortgage compared with a family who do not have the same tax advantages.

This is why we are now seeing fewer homes in Auckland being sold to owner-occupiers and an increasing share being sold to investors.

The Reserve Bank has announced it will be requiring a 40 per cent deposit for investor purchases, up from 30 per cent in Auckland and 20 per cent around the rest of the country. It will be interesting to see whether this has any impact on the increasing share of Auckland house sales going to investors.

Further measures may need to be introduced, such as tax rules around property investment.