Banks approved nearly $1 billion in low-equity mortgages to first-home buyers in March, the most in 12 years

Banks approved nearly $1 billion of low-equity mortgages to first-home buyers in March, the most in any month since the Reserve Bank began collecting the data twelve years ago.

Reserve Bank figures published this week show 1,537 first-home buyer mortgages with loan-to-value ratios above 80 percent were approved during the month, worth a combined $983 million. The volume was 31 percent higher than in March last year and more than triple the number of loans approved a decade ago.

Low-equity loans now account for almost half of all mortgages going to first-home buyers in this country. Interest.co.nz reported that the 45.3 percent share in March was just below the all-time peak of 46 percent set in September last year.

The figures sit alongside fresh evidence that getting onto the property ladder has become harder again over the past few months. The national lower-quartile sale price climbed to $607,000 in March, up from $583,000 in January, and the average two-year fixed mortgage rate rose to 5.05 percent over the same period after touching a low of 4.49 percent in November.

Combined, those two moves have added about $50 a week to the typical mortgage payment on a lower-quartile home bought with a ten percent deposit since the start of the year. Interest.co.nz also reported that the squeeze was sharpest in Auckland, where the equivalent extra cost on a $799,000 entry-level property worked out at $96 a week.

The lower-quartile measure is what most analysts consider the closest proxy for the first-home buyer market, with sales above that level generally going to people upgrading or investing rather than buying their first house.

For first-home buyers the rising prices and rising rates are working in the same direction, pushing more of them into low-equity lending to bridge the gap. The average loan size on a low-equity first-home buyer mortgage in March was $639,558, almost $100,000 above the average mortgage approved to a first-home buyer with a deposit of at least 20 percent.

Low-equity lending is not the same as a high-risk loan in the strict sense, because borrowers still need to pass the bank’s serviceability tests on conservative interest rate stress assumptions. It does leave less of a buffer if anything goes wrong. The Reserve Bank has previously noted that highly geared borrowers have less room to restructure their repayments if their circumstances change, and that banks recover less of the principal if the property has to be sold in a falling market.

Banks have been able to extend the loans because the Reserve Bank’s loan-to-value ratio rules currently allow up to 20 percent of new owner-occupier lending to go to borrowers with deposits below the formal 20 percent threshold. First-home buyers have been the main beneficiaries.

The Reserve Bank also has debt-to-income limits in force, which cap most lending at six times a borrower’s annual income. Those tools were intended to keep household debt from running too far ahead of incomes through any future cycle, but neither has so far slowed the rapid growth in low-equity lending to first-home buyers.

The volume of low-equity lending has more than tripled over the past ten years, and grown more than 600 percent in dollar terms, according to the Reserve Bank’s figures. That partly reflects rising house prices and average mortgage sizes, and partly reflects banks competing harder for the first-home buyer book.

Affordability gauges show the market remains stretched. Mortgage payments on a lower-quartile home in Auckland, Tauranga, Porirua and Queenstown all now exceed 40 percent of the typical first-home buying couple’s after-tax pay, the threshold above which the home is considered unaffordable on the standard measure. In Auckland every district from Rodney in the north to Franklin in the south falls inside that band.

The picture is not uniformly grim. Banks have continued to compete on rate for first-home buyer business, with several offering cashbacks and early repayment terms designed to soften the impact of higher headline rates. Lenders lifting their two-year carded rates over recent weeks have generally still left their advertised special rates a step below.

Still, the policy question is starting to look familiar. With low-equity lending sitting near record highs, and with rates and prices both moving against new entrants, the bottom of the market is increasingly underpinned by buyers who are stretching as far as they can. ANZ economists have forecast a small fall in house prices over 2026 and have flagged that mortgage rate increases are likely to continue, a combination that would put highly geared first-home buyers most directly in the line of fire.

For now the new entrants are still coming. Whether the run continues if rates keep rising will be the next test of the housing market this winter.

Have you taken out a low-equity mortgage to get into your first home? Tell us in the comments below.