Why first home buyers should take a ‘summer break’

A leading independent economist has explained why first home buyers may be smart to take a summer break from looking to buy a property.

A report from economist Tony Alexander and the Real Estate Institute of New Zealand (REINZ) last week found that real estate agents were noticing first home buyer activity falling significantly in November.

There’s been a flurry of changes in recent months which are impacting Kiwis’ ability to get a mortgage. That includes higher interest rates and changes to loan-to-value restrictions meaning fewer buyers will be able to secure a mortgage with less than a 20 percent deposit.

Dissecting the report and what it may mean for Kiwis going forward, Alexander told The AM Show on Tuesday that there is “quite a combination” of factors at the moment affecting first-home buyers.

“They can’t get the money out of the bank,” he said. “The banks are applying tighter loans to value restrictions, debt to income ratios as well and also counting expenses that were never previously counted as they look to meet the credit contracts and Consumer Finance Act. So there’s a credit crunch hitting first time buyers.”

“It’s really the biggest tightening I think we’ve ever seen, quite frankly, and it has come at the same time as we’ve seen the fastest increase in fixed interest rates since they appeared in the early 1990s.”

The Reserve Bank increased the official cash rate (OCR) by 25 basis points to 0.75 percent in November, following another 25 basis point increase a month earlier. As a result, banks moved to increase rates from the record lows we saw last year and earlier in 2021.

So where to from here? Alexander told The AM Show that vendors are likely to soon notice a shift in the market and become more realistic about what they want.

“We’ve had vendors see silly prices be achieved. So you know, if you’re selling, you hang out for that. Now, when they get a bit more data showing the markets pulling back, they’re going to get more realistic,” the economist said.