Many recent first-home buyers are stuck with their current lenders, mortgage advisers say.
The falling housing market of recent years has helped new buyers get into the market, but those who bought their homes before prices fell from their post-pandemic peak or early into the downturn have had the equity reduced significantly.
That is not generally a problem, if they do not need to sell their houses and are not struggling with the mortgage, but it often means they cannot move to another lender.
At the moment, banks are competing hard for new business, by offering cashback incentives of many thousands of dollars.
Squirrel chief executive David Cunningham said it was particularly a problem for Auckland and Wellington buyers.
“If you’re in the cohort of people who bought their house with a high or even 80 percent loan to value ratio, and prices have fallen up to 25 percent, you’re potentially in negative equity and it can be quite frustrating, if you would like to refinance. You’re stuck, you can’t refinance.
“Gradually, over time, it will resolve itself, but here and now, it’s a barrier to that group of people.”
With any price increase expected to be gradual, change could take some time.
Loan Market mortgage adviser Bruce Patten agreed the problem was common and was similar to the situation for those who wanted to move.
“A good example would be if you paid $1 million in mid-2021 and you borrowed $900,000,” he said. “The property values, on average, have dropped somewhere between 8-15 percent, so your equity is gone.
“If you’ve got negative equity, the market will take care of itself in time, but you just have to stay put. If you bide your time, in the next three years, you’ll be back to a position where you will be able to move, but the last thing you want to do – unless you can’t afford it – is to sell your house and be out of the market, because you bought at a peak and you’re selling at a low.
“There is a lot, particularly first-home buyers.”
Jeremy Andrews, from Key Mortgages said it could be possible to refinance in some situations.
“Common reasons might be that your current lender is charging higher interest rates, has unfavourable loan terms or if you initially had to use a second-tier lender, due to a poor credit rating.”
He said the Reserve Bank offered an exemption to loan-to-value restrictions for “dollar-for-dollar” refinance, where the loan amount did not increase.
“This helps prevents people being locked in with their current lender. In some cases, a main bank may even offer a cashback to refinance a high-LVR loan.
“A mortgage adviser can help assess your situation to see if refinancing works in your favour, plus which banks can work best.”
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