First home buyers in strong position despite grant cancellation

The Government's decision to scrap the First Home Grant in the recent budget will have a minimal impact on the first home buyer market, according to one of the country's leading property economists.

CoreLogic Chief Property Economist Kelvin Davidson told Trade Me that while the Government's decision was unwelcome news for anyone who had been planning to use the grant, it might prove to be less disruptive to first home buyers [FHBs] than expected.

“For a start, although it’s estimated that as many as two in every five purchases by FHBs lately have benefitted from a first home grant, there’s always been a sense that the assistance was ‘nice to have’, rather than the primary source of funding for most buyers. Indeed, given that a typical deposit at the moment is probably in the vicinity of $140,000 to $150,000, it’s clear that first home grants were only ever going to be a final top-up for many people,” he said.

“In addition, it’s also worth remembering that the grants were essentially a subsidy, and if property sellers are aware of the system, economic theory will tell you that this kind of policy just tends to push house prices up. In other words, yes, you might get $10,000 as help with the deposit, but you might need to pay $10,000 more to actually secure the property.”

Five factors favouring first home buyers

Mr Davidson also told Trade Me that overall conditions were quite favourable for first home buyers right now.

For starters, the First Home Loan scheme helps borrowers with lower incomes enter the market with a small deposit.

Also, the low-deposit lending allowances mean that 15% of owner-occupiers right now (and 20% from 1 July) can borrow with less than a 20% deposit, with new-build properties exempt from the rules.

Furthermore, first home buyers can use their KiwiSaver savings to help fund their deposit.

Mr Davidson also noted that first home buyers have more choice, due to a rising stock of listings, and limited competition from investors, given that the rental income for a typical investment property in the current market would be considerably less than the holding costs.

“Of course, there will still be challenges, such as the reasonable probability that mortgage rates don’t fall much until perhaps 2025, and also that buyers will now face formal limits on how much debt they can have in relation to their income ... But I still think that the first home buyer segment of the property market will remain relatively resilient, even without the grants that had previously been paid,” he said.

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