Interest rates

Recent first-time home buyers face falling prices and rising interest rates

Falling house prices and rising mortgage rates are scaring away aspiring homeowners, but recent first-time homebuyers say they have no regrets about their decision to buy.

The past few years have been tough for people looking to buy their first home. After the first Covid lockdown in 2020, the market exploded and prices soared, as did the size of deposits required for a loan.

But the market has turned and prices are steadily falling. In Auckland and Wellington, prices are down 15.7% and 16.2% from their respective peaks in November and October.

Many recent first-time homebuyers who bought at high prices may now have negative equity, with mortgages larger than their home’s value, due to persistently falling prices, according to analysis from CoreLogic.

At the same time, mortgage rates have risen rapidly over the past year, pushing short-term rates up from around 2% to 5%.

At the end of June, 45% of mortgages had less than a year to run on their fixed term, according to CoreLogic. And that means many first-time home buyers are facing a significant increase in the interest they pay on their mortgage.

Wellington property manager Harrison Vaughan bought his first home in Johnsonville last November. It was around the peak of the market, and he was relieved to secure a property amid the frenzy.

Wellington first-time home buyer Harrison Vaughan thinks prices will rise again in the long term.

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Wellington first-time home buyer Harrison Vaughan thinks prices will rise again in the long term.

He paid $930,000 for a three-bedroom house with a 500m² section. At the time, the median for the great Wellington was $962,500, so he was happy with the price. But homes.co.nz’s estimate is now $890,000.

“It makes me a little uncomfortable that my house is worth less than when I bought it, but I’m looking for the long term, and I think prices will slowly start to rise again, after this drop.

“My biggest concern is the ripple effect of the equity situation. It means I can’t get money from the bank for a new bathroom and kitchen. money elsewhere to do the job, or to hold the fire for a bit.

The sharp rise in mortgage rates is troubling, he says, but when he bought, he made the decision to lock in a three-year fixed rate of 3.2%.

“It comforts me. Some rates are starting to stagnate or drop a bit, so hopefully they will have stabilized by the time I have to review mine.

“But I would feel very different if I had gone for a low one-year rate and was aiming for a jump above 5%. A big lifestyle change would be needed to accommodate it.

Despite the evolution of the market, he remains happy to be an owner and to have autonomy over his space. Not having to depend on the rental market to find accommodation is a relief, he says.

“You don’t know what will happen in the future, but being an owner is more security. As long as you can afford the refunds without breaking the bank, it’s worth it.

In Auckland, Sophie Lawson and her husband bought their first home on the Te Atatu peninsula last March. They feel lucky to have been able to buy at all, as well as when they did – before the market got even crazier, she says.

“We love our house and the area. It’s five minutes from the freeway, so it’s easy to get anywhere. And we certainly wouldn’t like to go back to renting.

Auckland first-time home buyer Sophie Lawson is feeling the pain of rising mortgage rates.

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Auckland first-time home buyer Sophie Lawson is feeling the pain of rising mortgage rates.

The prospect of negative equity crossed their minds as prices fell. But they’re not worried because their home’s value has plateaued rather than dropped, she said.

“For about nine months after the purchase, we experienced significant growth, so we paid $800,000, but our house is now worth $1 million. In the long term, values ​​will increase and we plan to be here for some time before selling.

“When we do, we will be buying and selling in the same market. And the market is turning more into a buyers’ market, unlike last year’s crazy market, so it will be more beneficial for us when we do.

They recently felt the pinch of rising mortgage rates when they repriced theirs from 3.2% to 4.72%. This makes a big difference in their repayments, with less repayment of principal, she says.

“But when you look at the 20% rates our parents’ generation was paying in the 1980s, it still looks pretty good. It’s just that we feel like we’re doing less damage to our mortgage now.

This led them to consult a financial advisor and put together a new budget and savings plan.

While the plan, along with the rising cost of living, means they have less disposable income, it will allow them to pay off their mortgage faster, Lawson says.

“It’s worth having our own home, and rather than paying off someone else’s mortgage, we’re now building equity for our future.”

Daniel Steele is another very recent first-time home buyer in Auckland. He moved into his two-bedroom CBD apartment, which cost $410,000, just a few weeks ago and says he made the right decision to buy now.

The 21-year-old started saving to buy a house when he entered the workforce, as he wanted to get his foot on the property ladder as soon as possible.

Opting for an apartment in Auckland's CBD allowed Daniel Steele to buy his first home.

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Opting for an apartment in Auckland’s CBD allowed Daniel Steele to buy his first home.

“I could have waited a little longer and saved more money and then maybe gone somewhere bigger. But, given the unpredictability of the market in recent years, I wanted to do it when I could. »

While an apartment wasn’t his first choice, with an $83,000 deposit, his options were limited. He says he was unprepared for the difficulty of buying and credits his mortgage broker for helping him with it.

“It was really stressful, and it’s not a process I want to go through again soon. My apartment is a first home, but I’m thrilled to own it and have no regrets.

Buying so recently means it hasn’t been affected by soaring mortgage rates

“I have a split loan, most of it at a fixed rate of 5.29% and the rest at a variable rate of 6%. Sounds good to me, as I never experienced the low rates last year, and that’s what’s available now.

In Christchurch, Maeve Deacon and her sister collected the keys to their first home at the end of July. It was the culmination of several years of trimming, saving and then research.

Their new home is a two-bedroom unit with a garden and a garage in Linwood, which cost $485,000. He has good bones, but needs a bit of work, she says.

“We didn’t want a completely renovated place though. We wanted to be able to furnish our home the way we wanted and add value to it at the same time.

Being able to add value gives them some support if prices go down, and they’ve bought into an area that looks promising for long-term growth, so they’re not too worried about that, she says.

“Mortgage rates seem more like a gamble, but that’s the way it is. We’ve set ourselves at 4.99% for one year, and that’s fine with us. And, who knows, maybe we can get a lower one in the future.

First-time Christchurch home buyer Maeve Deacon says greater security comes with owning your own home.

KAI SCHWOERER/Stuff

First-time Christchurch home buyer Maeve Deacon says greater security comes with owning your own home.

Although the market may fluctuate, they are just grateful that they were finally able to buy their own home and no longer have to rent.

“It gives us a great sense of security, and knowing that the money we pay allows us to accumulate equity, and move towards our financial future, instead of that of an owner, makes us feel good”, says Deacon.

“It was hard work, but we feel really happy to be where we are now.”