Photo: RNZ
It could take at least five years for recent first-home buyers to regain the equity in their homes, if they had it wiped out by falling prices, CoreLogic says.
House prices are still about 16 percent below their 2021 market peak.
CoreLogic head of research Nick Goodall said there were about 3500 households that had bought at the peak and now had homes that were worth 20 percent or more less than they paid.
In most cases, first-home buyers have about 20 percent deposit - or less - so that meant that thousands had their deposits wiped out.
Goodall said at a projected rate of 4 percent annual house price growth, it could take five years to get them back to what their properties were worth when they bought them.
"Interestingly this would be relatively similar to the recovery from the GFC where I believe it took about seven years for the market to return back to the peak of 2007. With a larger fall this time around, particularly in places like Auckland and Wellington, it wouldn't surprise me to take longer this time around."
First-home buyers who bought with less than 20 percent deposit face an even tougher future.
Many banks do not offer their special, lower rates to buyers without at least 20 percent deposit or equity. They may also charge a low equity margin or fee on top of that.
That could mean that, although interest rates have fallen, a low-deposit borrower could still only be able to access a one-year rate of more than 7 percent while other borrowers can access less than 6 percent.
Banks generally will not reassess borrowers whose properties have fallen in price and shift them on to these higher rates if they were not required to pay them when the loan was first taken out.
But many people who assumed they could revalue their property before long and rid themselves of the extra cost are finding that is not possible.
Key Mortgages mortgage adviser Jeremy Andrews said he was dealing with clients who had purchased with low equity and were stuck with higher rates for much longer than would historically have been normal.
"House price growth has [historically] helped get them into the sweet spot of at least 20 percent equity quicker than just their principal portion of loan payments achieved.
"There are several options so out there for them which we explore and incorporate into our refix advice before deciding which direction to take on floating or different fixed options."
Another mortgage broker, Glen Mcleod of Edge Mortgages, said people who had less than 15 percent deposit could have up to 75 basis points added to standard home loan rates by low-equity margins, and a full percentage point could be added to those who had less than 10 percent.
Reserve Bank data shows a standard one-year rate was 6.9 percent in September, compared to 6.3 percent for a special rate.
An additional 75 basis points would take that standard rate to 7.65 percent for a low-equity borrower.
Goodall said it was important for people to remember that things were likely to improve.
"Whatever you're paying today it's likely your mortgage payments will reduce and you should see some value growth."
He said having lost equity in a property would usually only be a problem if someone had a relationship break-up, lost their job or had a death in the family and had to sell.
"Otherwise you're on your path, you can afford your mortgage because you were tested at 9 percent or whatever, 'hold on' is always the thing. Make sure you make the most of what this turnaround looks like in interest rates and property values."
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