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First home buyers will increasingly be squeezed out of the market as a rising number of asset-rich baby boomers with debt-free family houses try to cash in on property for their retirement.
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.
Many of the one million Kiwis ranging in age from 40 to 60 are fuelling the heated real estate market that has seen national house prices rise $35,000 in a year from $295,000 to $330,000 by December.
The 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. Debbie Bell, ASB's corporate communications head, said lending to existing homeowners was up by a third in the past three years.
"People who already have a house are buying because of the capital gain," she said. "They can get 100 per cent finance to buy their next place and by the time a deal settles, prices are rising so fast they can find 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."
But baby boomers were not the only competition for first-home buyers, she said. Investors living in Australia, Britain, the United States and Asia were buying here and an upsurge of migrants were also making the going tough for new buyers, Debbie Bell said.
Jeff Staniland, Mike Pero Mortgages' chief executive, said the business did not collect data on how many property owners applied for mortgages. But he believed many franchisees would confirm this was a growing trend because of people's need to create wealth and the strong real estate market.
Housing Minister Chris Carter is 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 will this month release a major study on the future of Auckland homeownership and the role of the private rental market.
Shamubeel Eaqub, research director at Goldman Sachs JBWere (NZ), said people should not be surprised to find a large portion of residential mortgage lending was going to homeowners for investment because a growing portion of the population were at their peak earning power.
"We have known about this demographic bulge and this also explains why house prices appear to be set by investors and not owner occupiers as was traditionally the case," he said.
He is concerned about the situation, questioning what happens when baby boomers, born between 1945 and 1965, wished to liquidate their property holding if they are not planning to bequeath them.
Dr Gareth Morgan, economist and author of Pension Panic, is concerned about what he calls "New Zealand's caste of nouveau landlords" and predicts a glut of property when the baby boomers attempt to cash up their real estate at the same time.
Kieran Trass said many banks viewed lending to property investors as a better proposition than financing first-home buyers. "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 said.
"Many property investors have given up waiting for the long-ago predicted property crash and are actively buying properties now."
But James Lockie, director of General Finance, disagreed, saying 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 questioned whether there had been a 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, he said, and he doubted there had been a big shift in patterns of home ownership.
