IR reports sharp drop in first home withdrawals from KiwiSaver

Wednesday, 2 February 2022

High levels of home building has helped Auckland’s shortage fall significantly.

There’s been a steep fall in people taking money out of KiwiSaver to buy first homes as Reserve Bank restrictions on low deposit lending bite.

Just over 1200 fewer first time home buyers were able to withdraw money from their KiwiSaver schemes in order to buy homes in December 2021 compared to December 2020, data from Inland Revenue shows.

In December 2020, a total of 4974 people withdrew a combined $143.5 million to help fund deposits on first homes, but in December last year, there were just 3738 first home withdrawals from KiwiSaver, with a combined $124.4m taken out to fund first home purchases.

Reserve Bank governor Adrian Orr voiced concern in August about the situation recent home buyers might soon be in, and since then prices have risen rather than fallen. (Video first published August 19, 2021)

Mortgage advisers and property experts say the dip is not the result of changes to the Credit Contract and Consumer Finance Act (CCCFA), which have seen the proportion of home loan applications that are approved fall.

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Instead, they blame Reserve Bank Te Pūtea Matua limits on how many low-deposit loans banks are allowed to make.

From November 1, banks were limited by the Reserve Bank to lending out no more than 10 per cent of new loans to owner-occupier buyers with deposits of less than 20 per cent, leaving them with loan to value ratios (LVR) of more than 80 per cent.

“I would say it's predominantly LVRs,” said John Bolton, chief executive of mortgage broker Squirrel.

“The LVR restrictions are really, really biting. All the banks are currently closed to any new lending at less than 20 per cent deposit,” Bolton said.

Mortgage broker John Bolton says first home buyers have experienced a big drop in borrowing power as a result of Reserve Bank restrictions on low-deposit lending, rising home loan rates, and banks made more cautious by responsible lending law changes.

The only exception was for buyers of new homes, who are exempted from the LVR restrictions in order to encourage developers to build more starter homes.

“The LVR restrictions are having a massive impact on first home buyers,” frustrating aspiring buyers who had less than a 20 per cent deposit, Bolton said.

First home buyers were also contending with rising home loans rates, and tighter bank lending criteria, Bolton said.

“Unless prices fall a bit, they will struggle to buy at all because their borrowing power has dropped so much,” he said.

Veteran housing campaigner Hugh Pavletich said some aspiring buyers may be waiting for prices to fall, which he expected to happen.

The annualised rate of new homes being built was up about 56,000, he said.

“On consents, we are running 43 per cent ahead of Aussie, which is huge,” he said.

CoreLogic head of research Nick Goodall is not expecting a crash, despite the gloomy outlook.

Independent economist Tony Alexander said a survey he conducted of mortgage brokers indicated that FOMO, or fear of missing out in anticipation of house prices rising even further, had fallen to a record low, with only a gross 20 per cent of agents reporting seeing it in buyers.

“First home buyer presence has collapsed from November after showing little change for virtually all of last year,” Alexander said.

Pavletich did not believe it was safe, or fair, for young homebuyers to borrow more than two-and-a-half times their incomes to buy a home, leaving them with little to live on, and unable to save for retirement.

The debt to income multiples buyers have been paying have been far higher, data from the Reserve Bank shows.

In September, just $64m of first home buyer loans went to people borrowing equal to or less than three times their incomes, while $600m in loans was made to people borrowing three to six times their incomes. A further $310m was lent to first home buyers borrowing six or more times their incomes.

Nick Goodall, head of research at property research company CoreLogic, said there had been a sharp drop in first home buyers, but there had been a sharper drop in investors.

“The LVR restrictions are certainly having an impact,” he said.

“There are some who would have been able to use their KiwiSaver to get their 10 or 15 per cent deposit, who now have to get 20 per cent deposits,” he said.

But, like Alexander, Goodall said buyers no longer felt under as much pressure to buy in case prices rose rapidly putting homes beyond their reach.

“People aren't as desperate, so they are not likely to reach to buy at any price,” Goodall said.