Kiwis wanting to get onto the property ladder will need longer to save a deposit if restrictions on new residential lending go ahead, real estate data company CoreLogic says.
It comes as the Reserve Bank is proposing to tighten loan-to-value ratio (LVR) restrictions which limit how much banks can lend on a home compared to its value. In an announcement on August 3, despite LVR adjustments already made, the central bank said it hadn't seen a sufficient reduction in "risky lending".
Concerned about borrowing at high LVRs and high debt relative to income in the last 12 months, if house prices were to fall, some buyers could face the possibility of negative equity, Reserve Bank Deputy Governor Geoff Bascand said.
Under current loan-to-value ratio (LVR) restrictions, up to 20 percent of new bank lending to owner-occupiers can be at over 80 percent LVR (deposits less than 20 percent). From October 1, the Reserve Bank is proposing to reduce the LVR limit to 10 percent of new lending.
In a 'Market Pulse' report released on Monday, CoreLogic said as first-home buyers make up a large portion of low-deposit borrowers, reducing the LVR limit to 10 percent is set to hit first-home buyers "quite hard".
Reserve Bank June residential lending figures* show 38 percent of all lending to first-home buyers was done with less than 20 percent deposit.
CoreLogic head of research Nick Goodall said data shows squeezing LVR limits further won't help first-home buyers - it will simply mean the "ever increasing deposit hurdle" is moved higher.
"It might be needed for improving financial stability but from a first-home buyer perspective, it's not going to help at all," Goodall said.
CoreLogic June data shows nationwide, first-home buyers paid a median price of $685,275 - around $150,000 more than in June 2020 ($535,000).
Having crunched the numbers, CoreLogic says moving from a 10 percent deposit to a 20 percent deposit would require Auckland first-home buyers to stump up an extra $90,000.
In Wellington, saving a 20 percent deposit would require an extra $81,000, or in Christchurch, an extra $50,000.
Based on the share of first-home buyers occupying each region in 2021, Kawerau is most likely to be impacted by the change to LVR rules (34 percent share compared to a national average share of 22 percent), CoreLogic said, followed by Upper Hutt and Central Hawkes Bay.
As a consequence of the proposed change to LVR rules, CoreLogic said it could mean there's a renewed focus on new-build homes, which are exempt from LVR restrictions.
Although KiwiSaver and compromising on property type and location are among the other ways first-home buyers can get onto the property ladder, the ability to purchase a home with a lower deposit than other buyers represents "a significant support," CoreLogic said.
The Reserve Bank is looking at clamping down on risky lending as part of its mandate to achieve financial stability. The Reserve Bank said it would start talking to banks about LVR restrictions in August, with a view to reducing the current 20 percent cap on new lending to 10 percent, from October 1.
*Reserve Bank June residential mortgage lending - higher than 80 percent LVR: total $816 million, first-home buyers $621 million.