Banks Increase Lending to First Home Buyers with Low Deposits Despite Risks

Date Published: 28 May 2024

Key Facts

• Banks are lending more to first home buyers with less than a 20% deposit.
• Average mortgage for first home buyers with at least a 20% deposit in April: $517,527.
• Average mortgage for first home buyers with less than a 20% deposit in April: $636,620.
• Difference in average mortgage amount for lower risk vs. higher risk borrowers: $119,093.
• Amount lent to higher risk borrowers is up 30% compared to March.
• Number of first home buyer mortgages approved decreased from 2447 in March to 2279 in April.
• Low equity loans have higher interest rates and fees.
• Average purchase price for homes with at least a 20% deposit: $647,000.
• Average purchase price for homes with less than a 20% deposit: $707,000.

Article Summary

Banks in New Zealand are showing a greater willingness to lend to first home buyers with less than a 20% deposit as the housing market transitions into its winter phase. According to recent Reserve Bank data, the average mortgage approved for first home buyers with a full 20% deposit in April stood at $517,527, whereas those with lower deposits borrowed an average of $636,620, amounting to a $119,093 difference.

This lending disparity, which has grown by 30% compared to March, is among the highest recorded since 2014, with only March and May 2022 seeing greater differences. This surge in lending to higher-risk, low-equity borrowers comes alongside a seasonal decrease in the total number of mortgages being approved for first home buyers, dropping from 2447 in March to 2279 in April.

While lending more to higher-risk borrowers can support overall lending volumes, it does come with added risks. These borrowers, likely to be highly paid but with lower savings, face higher mortgage costs due to increased interest rates and fees associated with low equity loans. Despite their costs, low equity loans help to stabilize lower-tier housing prices.

Estimates from Interest.co.nz reveal that homes bought by first home buyers with at least a 20% deposit averaged a purchase price of $647,000 in April, compared to $707,000 for homes bought by those with less than a 20% deposit. This indicates that the potential financial burden on buyers is far higher without substantial savings.

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