Generation Y Maybe Out Of Property Race

Generation Y have been dubbed the Property Orphans thanks to the LTV ratio introduced last year by the Reserve Bank. With 20% deposit required for up to 80% of new mortgages, Generation Y individuals and couples are reprioritising their saving and spending habits and saving for a deposit does not seem to be one of them.

Many of Gen Y’s under 28 year old population from expensive property areas such as Auckland, Wellington and Christchurch have decided that they have no chance of buying property until they get an inheritance. So instead of saving for a deposit which is so large it seems unachievable, they have begun to spend money on different things.

Travel and shopping higher priorities than owning your own home for Gen Y
Banks and lending agencies have noticed that there has been a 32% drop in new mortgage enquires from Generation Y in June to August, compared with the same time last year. With a 20% increase in credit card enquires from Gen Y in the August quarter compared to last year, it seems they still want to borrow, just not for a home.

A recent report from credit reporting bureau Veda has blamed the four recent hikes in interest rates by the Reserve Bank, rising property prices and the LTV ratio for more Gen Y choosing renting over buying. Veda New Zealand’s managing director said, “It looks like Gen Y is seeking to borrow for purchases on consumer items or travel, and has given up, at least for the meantime, a desire for home ownership which may appear unattainable.”

Not all lenders require a 20% deposit to buy a home
However there seems to be a misconception that if you want a mortgage to buy yourself a property, you need to have at least a 20% deposit. The Reserve Bank has said that banks can approve up to 10% of mortgages above the 80% borrowing mark, meaning that for every nine mortgages made below 80%, they can have one that is above.

People wanting to build also have access to a low deposit loan, with only 5% deposit needed in some circumstances. If an individual on the average wage of $55,000 wanted to purchase a $500,000 home, they would have to save for over ten years to raise the $100,000 deposit. Many Generation Y believe that length of time and amount of money seems unachievable, so instead they spend their money to enjoy themselves now.

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