Banks to blame for forcing first home buyers out of CBD, Bayleys says (Update 1)

First property buyers are turning away from inner city apartments and towards suburban houses because banks are forcing buyers to put up bigger deposits for apartments, Bayleys Real Estate group said. (Update 1 includes comment on ASB and Westpac.) Residential sales manager Rachael Dovey, said there had been a noticable shift in the demographics of the apartment market, with '20-somethings' being driven to suburbia and property investors purchasing more inner city apartments. Dovey also said that those buying apartments were moving away from making a purchase based on emotion, and were now increasingly basing the value of a property on financials, such as the price, rental yield, occupancy level and the cost of servicing debt. "(T)he requirement by major banks that first time home buyers have a 35 per cent deposit for inner-city apartments less than 50 square-metres in size, is forcing many potential purchasers to look to more traditional "˜brick and tile' dwellings in the suburbs "“ where only a 20 per cent deposit is required," Dovey said. "It's creating a disparity in buying habits. For example, to buy a $200,000 two-bedroom apartment, first home buyers now require a $70,000 deposit, and even then have to jump through hoops to get mortgage approval from the banks. Some banks won't even lend on apartments," she said. "By comparison, to buy a $280,000 three bedroom home in more established suburban areas, the same purchasers only require a $56,000 deposit. So our first home buyer is getting more "˜home' for less deposit." "As a result, we've seen a noticeable shift in the buyer demographics for inner city apartments over the past 16 months. It used to be that a sizeable percentage of enquiries were coming from professional "˜20-somethings' attracted to the convenience and lifestyle of living in the CBD." "Now that demographic has shifted more to investors taking advantage of lower property prices in the apartment market, combined with "˜cheap' lower mortgage interest rates." "Three or four years ago, buyers were basing the value of an apartment on emotion "“ that is to say they "˜fell in love' with a property, how close it was to the CBD bar scene, or their place of work in the city. Now, apartment buyers are increasingly basing the value of a property purely on financials "“ the purchase price, the rental yield, the occupancy level, and the cost of servicing debt." Dovey told interest.co.nz that some feedback from clients was that ASB was one of the banks that may not lend on apartments, unless the borrower was perhaps a long term client or had a good deposit. She said she couldn't speak for the rest of the banks, but Westpac seemed to be quite pro-active in the apartment market. Dovey said that prices in Auckland's apartment market were now fairly stable after 18 months of steady decline. "(W)ith very little new middle and upper-end quality stock scheduled to come onto the market, the supply/demand gap is narrowing quickly. This has helped underpin prices over the past four months," she said. We welcome your comment below.