Lifting the Lockdown on First Home Buyers
As we look forward to a takeaway dinner on Tuesday night and the world begins to look a little bit like it used to, QV’s Paul McCorry takes a look at how the property market has reacted to being under lock and key for the last four weeks.
In particular he looks at how the COVID environment has impacted one of the most active but also most vulnerable segments of the market – first home buyers.
The Hutt Valley, north of Wellington City has been a hotbed of first home buyer activity in recent years so we have tagged in local expert and Managing Director of Ray White Kemeys Brothers, Rupert Kemeys to get an agent’s view on life as a first home buyer going forward.
Servicing a mortgage has often not been the barrier for first time buyers of late, raising a 20% deposit has caused the biggest headache so drawing down some funds from your Kiwisaver was a great option. With investments taking a serious haircut it looked like they were going to have to take a big step back. Cue reports this week that the Reserve Bank are considering cutting Loan to Value Ratios and there was a glimmer of hope. But it raises two questions.
Firstly were all first home buyers actually saving a 20% deposit? Remember up to 20% of banks’ new loans to owner/occupiers could already have a lower deposit. The second is what appetite banks will actually have for low equity lending in an environment where most are predicting the market could have some negative growth in the next 12 months. It makes sense to remove a handbrake designed to prevent a market from overheating, but it will probably have limited benefit if you were already struggling to pull together a deposit before all this started.
It is a view echoed by Kemeys who suggests it is unlikely banks will lower their deposit requirements for first home buyers. "If they do lower any deposit requirements it would be more likely aimed towards investors. If there is a market correction this would be a much safer avenue for the banks. Say reducing the investor deposit requirement from 30% to 20% would have a very positive impact bringing many more investors back to the table."
One of the biggest factors for any property owner right now is whether they still have a job. The Wellington region benefits from a secure public sector base but private sector employees, if they are still in work could be down to 80% of their salary. Purchasing property, let alone their first home will not be front of mind.
Kemeys indicates that the lockdown has resulted in very low activity. “This primarily stems from buyers not being able to view homes. The stricter the requirements around viewings, the less offers we will see. The impact on first home buyer s is uncertain as the lockdown has pretty much bought the industry as a whole to a halt.”
It isn’t all doom and gloom – vendors and purchasers who were due to settle during lockdown have been advised to move their settlement date to 10 days after we re-enter Level 2 and Kemeys says that in their Jackson Street, Petone branch they have quite a few new listings ready to go live once we go to Level 3 next week. “Once we progress down the alert levels and rules are lessened you will see the market come back to life”, he notes.
On the whole if you are a first home buyer the playing field might look pretty similar, but the goal posts have moved a bit. Those who have saved their nest egg rather than utilised their Kiwisaver will be in the strongest position to capitalise on rock bottom interest rates, and it is comforting to know there are vendors ready to bring their property to market. But you do have to question the motivations for a vendor listing in this environment – is it because they have already bought another house, or perhaps they need to move to downsize?
The majority of existing home owners will most likely sit tight and ride out the pandemic storm in the medium-term. The flow on effect from this is constrained supply which might even prop up prices in the short-term. It won’t be until much later when the ‘good will’ of banks starts to run dry before we really see the scale of any market correction. If I was a First home buyer today, I wouldn’t be waiting around for a deal to fall into your lap. Your best bet might be to look at new subdivisions where developers will be keen to sell to keep the cash flow moving.
When all the talk settles down, it is good to remember that even if the market fell by 10 percent, the latest QV House Price Index shows values in the Wellington region grew by 10.8 percent in the 12 months to March 2020. Perspective is everything.