Revealed: how does today's largest group of property buyers differ from a few years ago?

New Zealand's property market has been a roller coaster in recent years. House prices initially soared at an astonishing pace to dangerously high levels. Then interest rates rose rapidly, lending rules tightened and investors withdrew from the market, sending prices tumbling. During this period, many first-home buyers tried to enter the market, only to face rapidly changing entry conditions. So what significant changes have first-home buyers experienced compared with two years ago? In this article, we examine a set of figures to identify the most notable changes in the property market over the past two years.

> Median first-home purchase price

Then: In August 2021, New Zealand's national median house price was NZ$850,000.

Now: In August this year, the national median house price was just NZ$767,000.

CoreLogic's house price data shows that in month 8 of 2021, the median price paid by first-home buyers was NZ$688,000. In August this year, that figure was just NZ$645,888. CoreLogic chief property economist Kelvin Davidson said the property market had changed substantially for first-home buyers, with the prices they paid down 9.5% from their peak in early 2022. Compared with other buyer groups, first-home buyers benefit from more policy support, including KiwiSaver, government first-home buyer grants and more favourable loan-to-value ratio (LVR) restrictions.

> Mortgage interest rates

Then: According to Reserve Bank of New Zealand data, in October 2021, banks' special two-year fixed mortgage rates averaged 3.66%; one-year mortgage rates averaged 3.16%; and five-year mortgage rates averaged 4.4%.

Now: This week, one-year mortgage rates offered by New Zealand's major banks ranged from 7.15% to 7.45%; two-year fixed rates ranged from 6.99% to 7.05%; and five-year fixed rates ranged from 6.5% to 7.09%.

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> Monthly mortgage repayments

Then: Assuming a loan of NZ$500,000 over 30 years at an interest rate of 3.66%, monthly repayments would be NZ$2291.

Now: For the same loan at today's interest rate of 7.15%, monthly mortgage repayments would be NZ$3278.

> Mortgage test rates

(The interest rates banks use to assess whether mortgage applicants could cope with higher repayments in future)

Then: When interest rates were at their lowest, some banks lowered their test rates to around 5%. Even at this time two years ago, most banks' test rates generally did not exceed 7%.

Now: Most banks currently use test rates of around 8.75%, the highest in recent years. However, ASB has reportedly taken the lead in lowering its test rate to 8.5%. Higher test rates reduce borrowers' assessed repayment capacity even when their income and deposit remain unchanged.

> Deposits

Then: Following the onset of the COVID pandemic, the Reserve Bank removed loan-to-value ratio (LVR) restrictions, formally reinstating them on 1 March 2021. Once reinstated, banks could allocate no more than 20% of their new lending to owner-occupiers with deposits below 20%. In November 2021, that limit fell to 10% of new lending. Based on the median first-home purchase price of NZ$645,888 in August 2021, a 20% deposit amounted to NZ$129,177.

Now: Banks can allocate no more than 15% of their new lending to owner-occupiers with deposits below 20%. Based on the current median first-home purchase price of NZ$688,000, a 20% deposit amounts to NZ$137,600.

> Supply of homes listed for sale

Then: Buyers had very limited choice over the past few years. According to Realestate.co.nz, there were 13,407 homes listed for sale in September 2021.

Now: According to Realestate.co.nz's latest figures, buyers can choose from 23,564 homes for sale on its website.

> Choice of property type

A Ray White real estate agent said Auckland city centre apartments priced between NZ$395,000 and NZ$440,000 had recently become the most popular entry-level option for first-home buyers. CoreLogic data shows that first-home buyers tend to favour properties priced below $500,000, such as an apartment in New Lynn priced at NZ$482,000, a unit in Papatoetoe priced at NZ$444,000, and a unit in Manurewa priced at NZ$489,000. Kelvin Davidson said smaller homes had driven a major construction boom, a trend that enabled first-home buyers to enter the market at lower prices.

Barfoot & Thompson managing director Peter Thompson similarly said the trend highlighted the increasingly prominent role of apartment and townhouse sales in Auckland's property market, and had driven a surge in listings of these types of property.

Then: CoreLogic head of research Nick Goodall said that five years ago, 68% of properties purchased by Auckland first-home buyers were standalone houses, while 20% were townhouses, apartments or units.

Now: This year, apartments accounted for 54% of properties purchased by first-home buyers, and units accounted for 37%. The proportion of standalone houses was almost negligible.