News: Baby-boomers 'hogging' NZ market

Wed, 07 Nov 07

First time buyers are being squeezed out of the housing market by baby boomers cashing in on property for their retirement, reports the New Zealand Herald...

More than a third of new mortgages are going to borrowers who own a house and that trend looks set to continue, banking industry experts and financiers say.

Almost one million Kiwis in the 40 to 60 age range are fuelling a heated real estate market that has seen house prices rise from $295,000 to $330,000 in one year.

These investors already own a debt-free house so are easily able to out-bid those trying to get their foot on to the housing ladder. ASB bank’s corporate communications head Debbie Bell said: “lending to existing homeowners has gone up by a third in the past three years”.

She added: "People who already have a house are buying because of the capital gain. They can get 100 per cent finance, and by the time a deal settles, prices are rising so fast they already have 5 per cent equity in the place. Even with a mortgage at 9 per cent interest, they get the rental income plus the capital gain and can sell in a couple of years with a good profit."

Overseas investors add to the problem

First time buyers also faced the added burden of competition from an increasing influx of migrants and overseas investors with money to burn, principally those living in Australia, Britain, America and Asia

Housing Minister Chris Carter has the responsibility of examining ways to address housing affordability. He is talking to councils about bringing in new incentives or rules so developers build lower-cost housing in new subdivisions and developments. And the Centre for Housing Research (CHH) will this month release a major study on the future of Auckland homeownership and the role of the private rental market.

Hybrid Group Property Analyst Kieran Trass observed: "No formal data is held on what mortgage funds are used for but I've thought for years it should be monitored by the Reserve Bank and sourced from the individual lending institutions”. 

He added: “Many property investors have given up waiting for the long-ago predicted property crash and are actively buying properties now".

Not as bad as it seems?

Director of General Finance James Lockie disagreed, indicating that only 34 per cent of all his firm's loans went to investors. "About 66 per cent of our home loan lending last year was for owner occupiers," he said.

Westpac chief economist Brendan O'Donovan even went so far as to question whether there had been any substantial rise in mortgages issued to existing home owners. He had not seen any data to show a dramatic increase in lending to this sector and doubted there had been a big shift in patterns of home ownership.

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