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04 Apr 2014

First Home Buyers Change their Ways

Loan-to-value lending restrictions in New Zealand are causing first home buyers to change their ways, with less opportunities to get into the market and growing competition from investors.  The percentage of first home buyers has dropped throughout New Zealand in the last few months, with Auckland City the only major centre to report an increase in activity.  While there are no easy solutions for people struggling to enter the market, some buyers are changing their expectations in order to get their foot in the door.

According to new figures from property data firm CoreLogic, the ratio of first home buyers has dropped 1.1 percent nationally since the new lending rules came into effect. Queenstown, Tauranga, Hamilton, Rotorua, and Napier have recorded the largest drops, with first home buyer numbers also down in Wellington.  Rotorua recorded the biggest percentage decrease, with the number of first home buyers down 5.1 percent compared to October last year.

Auckland continues to buck the trend, however, with 1 percent more first home buyers in Auckland City compared to October 2013.  However, there were 2.6 percent fewer first home buyers on the North Shore and 2.1 percent less in Manukau over the same period.  Upper Hut, Palmerston North, and Waimakariri recorded an increase of first home buyers, with figures up 4.9 percent, 2.9 percent, and 0.1 percent respectively.  Of the 22 areas surveyed by CoreLogic, only these four recorded an increase of first home buyers.

While the effects of LVR speed limits on the property market were muted at first, some commentators have attributed the recent slowing of price growth to the new restrictions.  Government valuer Quotable Value has recorded a reduction in annual house price growth over the last four months, from 10 percent in December 2013 to 8.8 percent in March.  Average residential property prices are also down across the country, dropping slightly from $468,484 in February to $466,665 in March. 

While price easing is good news for many first home buyers, there is some evidence that dropping prices are helping investors more than property newbies.  According to Infometrics in the latest Crockers Market Research Crystal Ball 2014 report, the same LVR restrictions that are keeping first home buyers out of the market are making it easier for investors:  "With fewer first home buyers in the market to bid up prices, investors have a greater chance of obtaining property at the lower end of the market at a reasonable and economically viable price."

According to Core Logic, there has been a decline in the percentage of first home buyers purchasing Auckland City properties valued between $400,000 and $500,000, with buyers more likely to purchase properties under $400,000 instead.  Properties valued at more than $700,000 are also less popular with first home buyers, with an increase in the $500,000-$600,000 value range suggesting new buyers are trying to do more with less.

First home buyers are currently between a rock and a hard place, kept out of the market when prices are high yet facing more competition from investors when prices ease.  Some first home buyers have decided to adjust to these new conditions, by borrowing less but doing it now at a time when interest rates are still low and price growth is levelling out.