Reserve Bank restrictions on home loans go into effect from today, but industry players don’t think it will do much to cool the market.
Loan-to-value ratios (LVRs) were temporarily lifted in the wake of Covid-19, but a galloping housing market forced the Reserve Bank to reintroduce them.
Meanwhile, some buyers have rushed to file their mortgage applications, to cope with the changes.
Demand for mortgages has exploded since the foreclosure ended last year.
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NZ Home Loans chief executive Aaron Skilton said their 75 businesses across the country were inundated, with record levels of activity.
“This means we settled over $ 1 billion in home loans in the six months to December – a record for us.”
Investor activity roughly doubled over the year, and demand from first-time homebuyers rose 30%, he said.
This has caused delays in processing requests and the request is not slowing down.
“Since the start of the new year, activity levels have increased again. So we are certainly seeing a dramatic increase this side of Christmas.”
CoreLogic’s January figures show that 30% of loans went to investors – the highest month for this group in 15 years.
But starting today, investors will need to make a 30% down payment and first-time home buyers a 20% down payment to get a loan.
This will drop to 40 percent for investors in two months.
Banks also have limited leeway to lend to borrowers with lower deposits – one in five first-time buyers and one in 20 investors.
Since the Reserve Bank started talking about reinstating the restrictions on lending, the banks are already imposing them voluntarily.
Kelvin Davidson, senior real estate economist at CoreLogic, said the 30% restriction probably wouldn’t do much, but 40% should start to have an impact.
“We’ve seen 40% work in the past, so we have every reason to believe it will happen again. But we’ve had a few comments here and there that if it doesn’t work from a financial stability standpoint, it’s an option to go to 50 percent.
“We’ve never had this before, but it couldn’t be ruled out.”
Davidson said it could be six months to a year before demand and prices cool.
Bruce Patten, director of Loan Market – a mortgage broker giant that covers a third of Auckland’s claims – is even more pessimistic than CoreLogic and doesn’t think the restrictions will make a big difference, especially for investors.
“If they had a home worth $ 1 million, it will now be worth $ 1.2 million, so they could already have that deposit of 40 percent of their existing home’s equity. ‘will only impact those who have bought more recently, perhaps in the last 12 months, who want to keep buying something else. “
Patten didn’t see a huge rush in preparing for the changes, which he attributes to the banks voluntarily adopting the restrictions earlier.
He said that while investors may be slightly put off in the coming months, first-time buyers won’t have to worry.
Banks are happy to lend to those with fewer deposits, as long as that’s the house they’ll be living in, he said.
“They are really looking at an individual’s abilities, their profession, the stability of their job, in order to make the decision whether or not to lend to them.”
Skilton agreed that those who own property are in a very good position to invest.
But he was more optimistic that the rapidly rising levels will level off, boosted by the changes in LVR.
Last week, Finance Minister Grant Robertson decreed that the Reserve Bank will now have to factor house prices into its decisions.
The Reserve Bank has said it agrees with the changes.
The government is expected to announce new measures to cool the housing market in mid-March.