Lower interest rates have sparked record-breaking levels of participation by first-time buyers, who are now responsible for 27% of all residential property deals, according to a new report by Cotality and Westpac NZ.
The dramatic 0.5% reduction in the Official Cash Rate (OCR) by the Reserve Bank of New Zealand in October has tempted many first homebuyers into the market – and they’re moving quickly.
The more recent 0.25% reduction, which takes the OCR to just 2.25%, will only serve to encourage even more Kiwis into the market and increase their spending power.
The “First Home Buyer” report by Cotality/Westpac NZ says that at 27.7% there have never been more first-time purchasers in the NZ market. The percentage beats the previous best of 26.9%, recorded in Q4 last year.
Remarkably, three-quarters (74%) of purchases have been for standalone dwellings. So, there’s little sign of compromise in terms of what younger New Zealanders want to buy.
Their entry-level price averaged $700,000, which is only $5,000 more than last year, according to the Cotality/Westpac NZ report.
It claimed first-time buyers were getting “bang for their buck” in a “soft market”.
Wellington is a classic example of this. The city and surrounding region have seen values struggle in the last few years. However, its percentage of first-time buyers is now up to 36%.
Ironically, the capital has just reversed an eight-month value decline, according to the latest OneRoof/Valocity housing report.
More than half of the loans taken by first-time buyers include 20% deposits, which avoid Lenders Mortgage Insurance (LMI), also called Low Equity Premium.
Westpac NZ says its own lending data shows first-time buyers have an average loan-to-value ratio of 79%, which is 5% higher than in 2022.
If there’s any negative in the report, it’s the fact the average age of a first homebuyer is 36, up from 34 before Covid.
The report said: “Market conditions generally have been looking more favourable for first homebuyers. Notably, increases in supply have allowed them to purchase larger homes while prices have been effectively moving sideways.”
This environment of subdued prices, interest rate cuts and lingering economic uncertainty is proving to be a “Goldilocks window”.
The high inventory of homes and the reduced borrowing costs means less frantic competition and more time to negotiate.
Here are seven tips for first-time buyers seeking to break into the today’s favourable market:
Support Schemes – Research all the schemes available to help improve your borrowing power. They include the KiwiSaver first home withdrawal and the Kainga Ora-backed First Home Loan, which allows eligible buyers to secure a mortgage with a deposit of just 5%, instead of the standard 20% required by banks.
Find a broker – With rates falling quickly in New Zealand, it’s a good idea to find a broker who can source the most appropriate loan for your needs. Often the cheapest loans come with the worst conditions, so weigh up the pros and cons of each option.
Secure pre-approval: Obtain a formal mortgage pre-approval with a clearly defined borrowing limit. These pre-approvals usually last 90 days.
Deposit buffer: Aim for a 20% deposit if possible, even if you qualify for a 5% loan. A smaller Loan-to-Value Ratio (LVR) saves you paying the LMI premium and secures the bank’s best available rates.
Prioritise affordability: Focus on buying a home that meets your essential living needs and is within your pre-approved budget. A first home should be your first rung on the property ladder.
Know your limit – Since you’re likely to see competitive offers as the market improves, know the absolute maximum you are willing to pay and stick to it.
Ready to act – Gather all essential financial documents (payslips, bank statements, KiwiSaver history) and alert your mortgage adviser and solicitor once you have an offer accepted. (Don’t make an offer without a pre-approved loan, though.)