Where have all the property buyers gone?

The results of a recent mortgage adviser survey show New Zealand investors and first home buyers are laying low in the current market.

Meanwhile, those with mortgages have a strong preference for fixing their loan for two years and there is a strong sense that lenders have further tightened their lending rules.

The findings in the latest Mortgage Advisers Survey, which is produced by mortgages.co.nz and Tony Alexander (pictured above left).

The mortgages.co.nz and Tony Alexander Mortgage Advisers Survey – January 2023 attracted 45 responses from advisers across the country.

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“A net 13% of our survey respondents this month have reported that they are seeing fewer first home buyers coming forward for mortgage advice,” Alexander said in the survey.

“This is the second negative month in a row and follows the Reserve Bank of New Zealand (RBNZ)’s November 23 raising of the official cash rate by 0.75% to 4.25%, predictions of further rises to 5.5% and forecast that a recession will be needed to suppress inflation.”

This compares to the December survey which showed a net 17% of advisers were seeing fewer younger buyers.

Alexander said the Janyary mortgage advisers survey responses included test rates remaining quite high and they were affecting borrowing capacity.

“There are a lot of people who are willing to purchase but do not want to buy something old and cheap and are happy to wait. Banks are very willing to lend if you can meet the servicing requirement and with Kainga Ora you can borrow up to 95% of the property price if you meet the criteria.”

Alexander said there was still a lack of funding if you had less than a 20% deposit.

“There is limited funding for first home buyers on existing properties and this is creating a hole in the market for sellers of “first home” properties,” he said. “Investors won’t buy and the RBNZ limitations mean first home buyers are being pointed to new build purchases.”

Are investors still investing with interest rates so high?

On 27 March 2021, new legislation was introduced to cap property investors claiming 100% of their mortgage interest charges. For investment properties purchased after March 27, 2021, owners could only claim 75% of mortgage interest charges before the percentage drops to 50% on March 31, 2023.

Lucia Xiao (pictured above centre), founder of Auckland brokerage Finax, said investors were concerned when the legislation changed.

“It was a time for panic as investors were only given one week’s notice that the rules about mortgage interest charges were changing,” Xiao said. “If an investment property was purchased before this date, then the purchaser was still able to make a four-year tax deduction, however people were still rushing to secure a property before the cut-off date.”

Xiao said property was a great tool to build on your assets and create wealth.

“I highly suggest reaching out to mortgage experts, brokers and property developers if you want to buy property as it will cost you more money in mistakes, so avoid them and speak to the professionals who can help you,” she said. “I recommend investing in yourself and spend the time and money to learn these lessons properly.”

Alexander said 40% of survey respondents reported that fewer investors were coming forward for assistance with their financing requirements.

“Interest from investors in residential property buying remains as bad as it has been since early 2021 when the tax rules changed,” Alexander said.

“Advisers are saying there are basically no investors in the market as people who are buying investments are very cashed up or buying for a family member, etc. It is still limiting LVR to 60% on investment deals, plus banks are doubling up on proposed expenses by shading rental income to 70% and then adding rates and insurances for an investment property on top of this.”

What loan term is most popular amongst homeowners?

Brock Shute (pictured above right), one of NZ Adviser’s Top Adviser’s for 2022, director and mortgage adviser at The Mortgage Advice Company said majority of his clients with fixed rates ending soon were looking to refix their interest rate early because the floating rate was considered dangerous at the moment.

“I have clients who I am speaking with who might still have six months remaining on their fixed term at an attractive rate, however, want some form of certainty now because the fear of where rates will be when their current contract ends could be much higher than where they are sitting now,” Shute said.

“I am seeing a trend of clients breaking their current loan contract and refixing now, receiving a cash contribution (depending on the lender) and refixing for another two-year loan term. Most of my clients are currently refixing for three years, however it depends on their personal circumstances and what they plan on doing with the property over the next few years.”

Alexander said 78% of advisers surveyed reported that property buyers and those refinancing mortgages preferred a two-year fixed rate term.

“The preference for fixing two years has been on a strong upward path since the end of 2021 with just a brief interruption mid-year when there were hopes that inflation would be easily brought back under control,” Alexander said.

“The preference for fixing one year remains very low, few borrowers want to fix for three years and the preference for five years is as non-existent as ever.”