Could 2016 be the year for First Home Buyers?

Date: 12 January 2016

Nick Goodall, Senior Research Analyst, CoreLogic NZ Ltd.

First Home Buyers found their way back into the market throughout 2015 as lending conditions remained favourable and regulatory changes targeted property investors, both local and foreign.

KiwiSaver funds being accessed for first homes continues to increase as more and more people become eligible to withdraw funds and on 1 April 2015 new rules came into effect for first-home withdrawals that allowed larger sums to be withdrawn.

Our Buyer Classification data illustrates the changes in home buyer classes throughout the last few years, both in Auckland and around the rest of the country.

In Auckland we can see the influence of Multiple Property Owners over the last three years – typically accounting for around 35% of purchases throughout 2013, increasing gradually to 40% in September 2015.

The Government and Reserve Bank changes1 started having an impact, in the final quarter of 2015 and appear to have increased Multiple Property Owner purchases in the lead up to the RBNZ changes before subsequently dipping in October and November, and rebounding slightly in December 2015.

First Home Buyers have been the group to benefit the most from the pull-back of Multiple Property Owners in Auckland. It is likely they were the ones previously missing out and are now taking advantage of the less competitive market.

After accounting for only 19% of purchases in March 2014, the low point after the introduction of the original LVR (loan-to-value ratio) restrictions in September 2013, First Home Buyers in the Super City have found their way back into the market. In  each of the last three months of 2015 they accounted for 23% of sales.  This is just behind the previous peak (24%) before the LVR speed limits were introduced, and roughly the same as their average in prior years.

The pattern for First Home Buyers around the rest of the country is very similar. The effect of the original LVR speed limits is more pronounced – with a clearer increase before introduction and a swifter decrease afterwards, but ultimately the trend is the same. First Home Buyers accounted for roughly 20% of purchases three years ago and after dropping to 17% in February 2014 they have gradually become more and more active, increasing to 20% in June 2015 and now up to 21% in November and December 2015.

So what’s the outlook for First Home Buyers in 2016?

Forecasts are mixed for where the OCR (Official Cash Rate) will go, but it’s likely that interest rates will remain relatively stable, meaning favourable times for borrowing. This of course benefits all borrowers not just First Home Buyers, but with the other buyers constrained by further restrictions, First Home Buyers should see less competition in the market, especially in the first few months of the year. We could then see foreign buyers back in the market, after being impacted by the requirement of needing a New Zealand Inland Revenue Department number and bank account3 late last year.

KiwiSaver will continue to be an important source of funds for First Home Buyers as more-and-more people have increased funds available for withdrawal, which they’ll probably need as values, especially in Auckland, will likely continue to grow off the back of a lack of supply and sustained demand (despite investor restrictions).

Notes:

1 The Government and Reserve Bank changes are as follows:

October 1 2015

  • Capital gains tax on non-owner occupied properties sold within two years
  • Foreign buyers to have a NZ bank account and IRD number plus a link back to their home country IRD number

November 1 2015

  • Current LVR speed limits of 10% of new lending to customers with less than 20% deposit remains in place in Auckland
  • But raised to 15% outside Auckland
  • Auckland investor loans require a 30% deposit
  • Banks hold more capital against these investor loans

 

2 The Reserve Bank’s original LVR speed limits were as follows:

October 1 2013

  • 10% of new lending to customers with less than 20% deposit nationwide

3 NBR article on IRD processes affecting foreign buyers

http://www.nbr.co.nz/article/tax-red-tape-delays-hit-foreign-investors-hot-stocks-watch-auckland-city-squeezed-183178

Tags: First Home Buyer, property market, Kiwisaver, property owner


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