Death of the 20% deposit? More than half of first-time buyers are overcoming the savings hurdle

The five things you need to know about the housing market this week.

1. First-home buyers love a low-deposit loan

I've been digging into recent home loan figures and found some interesting stuff under the hood. One, households are generally managing to keep up with their mortgage payments, with only a relatively small number of loans in trouble. Two, the loan-to-value ratio rules are not a major restraint. In June, around 16% of lending went to owner-occupiers with less than a 20% deposit. But here's the thing, around 50-55% of loans to first-home buyers this year have been done at less than 20% equity. In other words, more than half of first-home buyers aren't waiting till they have a 20% deposit; they’re getting a foot on the property ladder with much less.

2. Borrowers are still shopping around too, and looking at longer-term fixed rates

The Reserve Bank’s mortgage lending figures also show that bank switching – or refinancing – remains high by past standards, with many borrowers still having enough flexibility in their loan structure to chase a new cashback at a different bank without too much hassle or cost. Meanwhile, whether they’re a new borrower, an existing borrower staying loyal, or a switcher, more are now extending out the terms of their loans – recently 50-60% of lending has been on a two-year fixed rate, up from less than 20% as recently as November last year.

3. Obvious concerns but consents are still rising

Given the continued US-Iran conflict, higher fuel prices, and rising input costs for builders (yet flat selling/house prices), it’s no surprise that sentiment emanating from the residential construction sector is patchy at present. Despite that, however, the number of new dwellings being consented continues to rebound, hitting 40,581 in the year to June – the highest figure since August 2023, when consents were actually already falling away from the mid-2022 peak. This upturn is being driven by Auckland, Canterbury, and Otago (particularly Queenstown and Central Otago).

Cotality chief economist Kelvin Davidson: "A rate rise in September still seems likely." Photo / Peter Meecham

Given the uncertain economic backdrop and the increases in mortgage rates, this growth in dwelling consents could easily peter out. But even if it does, we’ve still got a decent number of dwellings coming through, which is great for long-term housing affordability.

4. Higher unemployment rate might not sway the RBNZ too much

Stats NZ reported last week that the unemployment rate lifted from 5.4% in Q1 to 5.6% in Q2, the highest figure for nearly 11 years. At face value, that’s a very disappointing result. But it’s worth noting that employment actually lifted, so the unemployment rate only went up because of a bigger labour force, i.e. more population and a higher participation rate.

In other words, this was about increased labour supply rather than reduced labour demand, so it might not sway the Reserve Bank’s OCR decisions too much. A rise in the unemployment rate is obviously not ideal and could hint at reduced risks of higher wage demands and associated second-round inflation pressures. But even so, jobs are still growing, and the RBNZ has signalled it wants to get the OCR back to neutral, so a rate rise in September still seems likely.

5. Migration still not changing too much?

And finally, just a quick look ahead to Stats NZ’s migration figures for June, due out on Friday this week. The annual running total for net migration may well have lifted a little further in June, but it remains low by past standards and helps to explain why property rents remain sluggish at present.

- Kelvin Davidson is chief economist at property insights firm Cotality