Home deposit scheme a major incentive
House price growth has fallen 30% in the Wellington property market in the last nine months, and first home buyers are coming back, says a Lower Hutt mortgage adviser.
Brock Shute (pictured above), one of NZ Adviser’s Top Adviser’s for 2022 and a director and mortgage adviser at The Mortgage Advice Company, said the local market was undergoing a small recovery period as first home buyers slowly returned to the market, thanks to Kāinga Ora introducing a 5% home deposit incentive.
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“The local market was in freefall this year because first home buyers vanished,” Shute said. “The market during 2021 was a feeding frenzy of first home buyers because the government was lending cheap money and first home buyers did not need to have a full 20% deposit at the time.”
“However, the Labour government rushed through new legislation that the RBNZ had to factor in house prices into their Official Cash Rate decisions. So on November 30 last year (the day before the new CCCFA changes were implemented), I received numerous calls from banks on behalf of my first home buyer clients who had pre-approval without a full 20% deposit and was told their existing pre-approval was cancelled. This wiped all first home buyers with less than a 20% deposit from the market in one day.”
Shute said this move resulted in a domino effect for the entire property market throughout 2022.
“Once you remove first home buyers from the market, local real estate agents were telling me their open home numbers were zero most of the time, he said.
“Thankfully, thanks to the Kāinga Ora’s first home buyer scheme, they have returned to the market and are happy because house prices have fallen this year. Confidence has returned to the market and in the last month we have seen approximately 25% of all property transactions were first home buyers – the highest percentage in a long time.”
Shute said the consistent OCR hikes were spooking a lot of people who could not keep up with the velocity of the sharp rises.
“During COVID-19, lenders were given a chunk of change from the government and were told this would get you through, however you need to choose how you spend it,” he said.
“Both ANZ and ASB introduced their ‘Back My Build’ incentive by offering a 2.76% floating rate if someone chose to buy a turnkey package or built their own home, because the lenders wanted to align themselves with the government with the low housing stock available to incentivise the rate of new builds.”
Shute said as the OCR has been consistently rising since October 2021 and economists were predicting further increases into 2023, the majority of his clients with fixed rates ending soon were looking to refix their interest rate early because the floating rate is considered dangerous at the moment.
“I have clients who I am speaking with who might still have six months remaining on their fixed term at an attractive rate, however, want some form of certainty now because the fear of where rates will be when their current contract ends could be much higher than where they are sitting now,” he said.
Shute said he had also seen a trend of clients breaking their current loan contract and refixing, receiving a cash contribution and refixing for another three-year loan term.
“Most of my clients are currently refixing for three years, however it depends on their personal circumstances and what they plan on doing with the property over the next few years. Occasionally, you do come across a conservative customer looking for a four to five year term, which does provide peace of mind, however those clients are few and far between.”
