Over the past three months mortgaged investors’ share of property purchases has fallen and first home buyers (FHBs) have enjoyed an increase – although these patterns will still be due more to the 40% deposit requirement for investors rather than the March tax changes. First home buyers are using supports such as their KiwiSaver funds to continue to secure properties, while the vast majority of LVR-exempt lending is going to FHBs too.

The June Buyer Classification figures show that the decline for mortgaged investors’ (multiple property owner) market share is now well and truly underway as we had been anticipating. As the first chart shows, their share of purchases in June was 24.2% (the lowest since June last year), leaving the figure for Q2 as a whole at 25.0%. It must be said that the number of purchases made by mortgaged investors in Q2 was still pretty strong, in fact the highest for a June quarter since 2016. But at least from the Government’s perspective of ‘tilting the market’ away from investors, these shifts in the market share figures will be what they’re wanting to see.

Chart 1

Of course, it’s debatable whether the tax changes at the end of March can take much of the credit for the decline in mortgaged investors’ market share just yet. Indeed, the tightening of deposit levels is likely to have been the dominant factor, and as the second chart shows, the evolution of mortgaged investors' market share this time around has been pretty similar to what it was when investors last required 40% equity at the end of 2016. If anything, however, the figure may dip lower in this cycle, given the extra focus from the Government in terms of the extension of the Brightline test and phased removal of interest deductibility.

Chart 2

It’s also interesting that the falls in mortgaged investors’ market share in the past three months have come at the smaller end of the spectrum – those buyers who have two properties after their latest purchase (i.e. generally their own home and one rental), or those with 3-4, as illustrated in the third chart. These smaller investors are potentially affected most by the tighter financing requirements and also perhaps take the more cautious path as they wait to assess what the final rules might actually be (note that consultation ended on Monday 12th).

Chart 3

Turning to other groups in the market, the offsetting rise in share of purchases has been for first home buyers (FHBs). After a peak of 25% in Q3 last year, their market share dropped to 21% over the next two quarters – but has now risen back to 24% in Q2 2021, and 25.1% in June alone (back above the mortgaged investors’ figure). Despite the fourth chart showing that our years to save measure has recently risen to a new high of 9.5, FHBs are still clearly finding ways to access the market – including KiwiSaver withdrawals for their deposit, and also taking advantage of the LVR speed limits. Indeed, four-fifths of all lending done at less than a 20% deposit in May was to FHBs.

Chart 4

Overall, the patterns for market share are moving along as would be expected in response to rule changes over the past six months or so, and the outlook is for mortgaged investors’ figures to keep declining. We also expect price growth to slow, but more due to general affordability pressures and mortgage rate rises, rather than a reduced investor presence.