Since the implementation of the RBNZ’s loan to value ratio (LVR) policies on October 1st there has been some significant positive and negative effects on the housing market- many of which have only just begun to appear. These include:
Housing Market in Provincial Areas Stalling
The Bad: Real estate agents, mortgage brokers and investors alike in provincial areas have been left fuming, as the LVR policies have taken the heat out of rural and provincial property markets, with less properties being listed and sold. One such critic is Colleen Milne- CEO of First Nation real estate agents. In a recent interview she stated that she is “Disappointed really that there’s been interference in the market and it’s really driven by Auckland and by Christchurch and it really is having an effect and slowing down the whole country.”
The Good: If you’re looking for a property in one of these areas, you may be finding it much more affordable now as competition lessens, and house prices plateau (and potentially soon fall).
Number of First Home-Buyers Has Lessened
The Bad: First homebuyers have been arguably hit the hardest with these new policies, and as such their numbers have been reduced severely. There are now significant gaps in the property market, especially in areas where new-homeowners amount to a significant proportion of properties sold- which can range anywhere from 10-50%.
According to First Nation recent open homes in Bleinheim have had an attendance rate of less than 60% compared to earlier this year as a result of this phenomena.
The Good: Arguably, many new homebuyers are among those the RBNZ was targeting, as they are seen as more likely to have less stable income and over commit themselves to properties that are not financially sustainable. As such, the new home-buyers that are getting through tend to meet the criteria for a good lender, ensuring the fiscal stability of NZ is maintained- without the need for any of the RBNZ’s further (more drastic) policies to be implemented.
Loan Criteria Appears Somewhat Flawed
The Bad: As it stands, numerous first home- buyers are missing out- many of which blatantly should meet the RBNZ’s mould for an ideal lender. However, there has been one major issue between the implementation of the policy and its purpose- the fact that middle to higher income individuals (and therefore more ‘reliable’ lenders) are being cut out of the market according to Treasury reports.
These reports contained critiques of the policies such as “Those who do not meet the Welcome Home Loan criteria would be affected by the introduction of LVRs” and “These creditworthy but equity-constrained borrowers would be affected (by the policies)…. International evidence suggests that this group contains the largest number of affected borrowers.”
Essentially – a vast proportion of “creditworthy” individuals are being cut out by these policies, as their incomes are too high for governmental assistance, but their savings not yet large enough to reach the 20% deposit threshold.
The Silver Lining: There are very little positives to be taken from these flaws, however there is a small ray of hope for those potential stuck in this situation. That is that the banks will likely want you as a mortgagee- and as such you are more likely to fall into the 15% of high LVR loans, particularly if you take the appropriate steps to present yourself in the best possible light (If you are unsure of how to implement this, consult a broker). If all else fails, with a decent salary at least you will at least be likely be able to save enough to reach the deposit soon enough providing you are looking for a reasonably priced property.
Confusion in the Auckland property market
The Bad: Auckland house prices have not fallen as intended- instead the average sale price has risen approximately 0.8% (or $5000) over October alone, flying in the face of national trends and the RBNZ’s intentions.
Furthermore, houses that theoretically should be in the price bracket for new homeowners are selling below value- if at all. This suggests that sales across the region are being driven upwards by investors rather than new homebuyers.
The Silver Lining: However, the lack of new home buyers in Auckland be a result of more than financial constraints, and as a result the current situation may be much less dire than it appears.
As such, it is worth remembering that new-homebuyers can be successful in today’s market, and that there are great deals to be had on some of these properties (even in Auckland) if you get in quick!
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