Hundreds of Wellington first-home buyers who bought at market peak now in negative equity

PHOTO: Wellington, NZ. FILE

According to STUFF hundreds of first-home buyers in Wellington are estimated to now be in negative equity because of persistent price falls across the region, CoreLogic analysis shows.

CoreLogic head of research Nick Goodall said an estimated 34% of first-home buyers who purchased in the capital during final quarter of 2021 were now in negative equity, with mortgages bigger than their homes were worth.

In Upper Hutt the proportion was 48%, in Lower Hutt it was 43%, and in Porirua it was 31%.

But Goodall said there should not be too much to worry about while the economy and labour market remained solid.

“I think one of the important things to note here is that just because you’re in negative equity on paper it doesn’t mean the bank will come asking for more money to top up the loan,” he said.

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“With long-term growth expected to come back at some stage, and unemployment remaining low, banks and mortgage-holders should be willing and able to hold on through the downturn.”

The analysis assumed a 20% deposit, which most first-home buyers were required to have, that no principal had been paid back, and was calculated by comparing purchase prices to how much homes were worth today.

Nick Goodall, CoreLogic head of research, says while the economy might go into recession it is not expected to cause significant job losses, so most Kiwis will be able to keep up with mortgage repayments.

Goodall said the analysis was relatively simplistic, but the first-home buyer population targetted would likely have only paid down about 1% of their loan.

Current values were based on CoreLogic’s automated valuation model, which is often used by banks to estimate a property’s value.

CoreLogic’s July House Price Index showed homes across the Wellington region were worth less than they were at the same time last year, after average values fell a further 3.6% in July.

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The analysis also found some first-home buyers who purchased during the third quarter of 2021 and the first quarter of this year were likely in negative equity, although the ratios were smaller.

For those who bought between January and March this year, 19% of first-home buyers in central Wellington were estimated to be in negative equity.

In Porirua the figure was 12%, Lower Hutt was 13% and Upper Hutt was 10%.

Goodall said prior growth, high first-home buyer presence previously, and stretched affordability were some of the drivers behind Wellington’s price falls.

Living the price fall

Ed Scragg and his wife bought their first home in the northern Wellington suburb of Newlands last August, about two months before the market peaked.

Scragg said the estimated value of their three-bed property initially rose about 15% on Homes.co.nz, but all capital gain had been eroded, and he expected to face a loss if he had to sell today.

Scragg was not overly concerned about the spectre of negative equity, because he and his wife had built up a strong deposit over years of hard saving.

They also bought the house as a family home and had no intention to sell, and when the time came, he expected the market to have recovered.