First home buyers more than holding their own in the home loan market

First home buyers continue to hold their own in the housing market despite all the talk of dire consequences as a result of changes to the Credit Contracts and Consumer Finance Act (CCCFA) that took effect from December 1 last year.

The latest lending figures from the Reserve Bank (RBNZ) show that new mortgages were approved for 1417 first home buyers in January.

That was less than half the 2959 first home buyers that received mortgage approvals in November. However that was because total mortgage approvals to all borrower types and residential real estate sales were both well down in January.

The total number of new mortgages approved slumped to 12,007 in January, down 37.4% compared to January last year.

Last month’s new mortgage approvals were at their lowest level for the month of January since the RBNZ started publishing the figures in August 2014 and are at their lowest point for any month apart from April 2020 when the real estate market virtually closed down due to Level 4 Covid restrictions.

However while total mortgage approvals in January were down by 37.4% compared to a year earlier, approvals to first home buyers as a percentage of total mortgage lending actually increased over the same period, rising from 10.4% in January 2021 to 11.8% in January 2022.

In fact, the percentage of mortgage being approved for first home buyers is continuing at relatively high levels compared with previous years.

In January 2015, first home buyers accounted for just 5.4% of total mortgage approvals and their numbers didn’t pass 10% until May 2018 and didn’t pass 11% until November 2019.

Over the two years from January 2020 to January 2022 there have only been four months were first home buyer’s share of total mortgage approvals has been higher than last month’s 11.8%.

So any suggestion first home buyers are being disproportionately affected by the CCCFA appears to be unfounded.

Where there definitely has been a significant shift in lending to first home buyers is at the riskiest end of the market with low equity loans.

The percentage of low equity mortgage approvals to first home buyers with less than a 20% deposit rose steadily last year, from 32.4% in January and peaking at 37.9% in October.

Low equity approvals then dropped back sharply in each subsequent month to just 20.5% in January 2022.

That in turn has seen a reduction in the average size of mortgages being approved for first home buyers, which declined from its peak of $595,274 in December last year to $577,982 in January this year.

While that is still up by about $60,000 compared to January last year, it is at least a step in the right direction.

It may be significant that much of the hand wringing around the effects of the CCCFA is coming from ticket clippers – people such as mortgage brokers and real estate agents who are either directly or indirectly dependent on mortgage lending for their incomes, but who do not have to deal with the potentially disastrous consequences of borrowers over-stretching themselves with high risk, low equity mortgages.