National’s home loan shake-up: Will 5% deposits kickstart the market?

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

1. First-home buyers are already strong even with current low-equity loan income caps

Last week, National outlined its proposal to significantly raise the income caps for people to qualify under Kāinga Ora’s First Home Loan scheme – where people only need a 5% deposit, and can borrow from commercial lenders but with a government guarantee.

I’ll leave the politics of this to others, but there are a few points that stick out to me. First, it’s obviously great for those people who would qualify – especially if they were battling to save a deposit in high-priced areas such as Auckland, Tauranga, or Queenstown.

Second, it’s also worth noting that first-home buyers are already a strong force in the market, even under the current (lower) income caps – and many are already getting in with perhaps a 10% or 15% deposit via the banks’ speed limits/allowances under the LVR rules. Third, the price effect from any extra demand doesn’t seem likely to be significant – after all, listings are already high, and first-home buyers are already busy, yet we’ve still got a flat market right now in terms of values.

Fourth, this is very different from a subsidy for first-home buyers, which tends to get baked into a higher price. Instead, there are no freebies here; first-home buyers still need to meet serviceability testing and will pay extra fees, and, of course, a smaller deposit simply means a larger loan.

2. Property values remain sluggish out there in suburbia

Cotality’s latest analysis of granular property value data confirms a continued sluggish market, with nearly four in five suburbs (79%) recording falling values for standalone houses over the three months to September. To be fair, in several of these declining suburbs, the dip was minor at -1% or less, while around 300 (of 1422) areas held stable or rose. That being said, this still left more than 750 suburbs where house values dropped by more than 1%. It remains patchy out there in the ‘burbs.

Cotality chief economist Kelvin Davidson: “A smaller deposit simply means a larger loan.” Photo / Peter Meecham

3. Are we into an economic recovery?

The data highlight this week will be the Q2 GDP figures from Stats NZ on Thursday morning. Yes, they’re always out of date, given they relate to the period April-June and we’re now about halfway through September. But they’re still important figures and, after initially looking like Q2 would be a very weak result against the backdrop of the Middle East conflict, most indicators now suggest we might just sneak out a small amount of growth in Q2, or steady at worst. For example, the RBNZ’s Kiwi-GDP measure points to perhaps a 0.2% lift. That’d be a decent result in the circumstances, and with the current quarter also looking better, we might just be turning the corner.

4. Migration could trend higher again

Also this week we’ll get the July migration figures from Stats NZ. There’s been a slow upward trend for net migration evident in the past several months, as departures ease a bit and arrivals gradually rise. But it’s coming off a low base, and even though we may see another rise in the July figures, it’s unlikely to drive any real housing pressures for a while yet.

5. Inflation is back on the agenda

Stats NZ will also publish the August selected price indexes figures on Friday this week. This monthly indicator relates to nearly half the benchmark quarterly CPI, so it will also be watched closely. After a better (lower) than expected result in July, another follow-up would add to the sense that the RBNZ doesn’t need to rush as they look to get the OCR back to 3% or so. In turn, this would tend to reduce fears of further meaningful mortgage rate rises too.

- Kelvin Davidson is chief economist at property insights firm Cotality