Since the Reserve Bank cut the main trading Banks to 80% there has been a lot of talk about its effect, or not, on the Auckland market so I thought it opportune to have a look and see what’s happening.
From a lending point of view nothing has really changed as non-bank lenders have taken up the challenge and replaced the main banks with 90% lending at regular rates, both for owner occupied and investment. Other options have included the bank of Mum and Dad and we’ve certainly seen a few of these.
Many people have a distrust of non-bank lending, maybe with some justification going back to the GFC and finance company failures. But there is a world of difference between non-bank and finance companies and the bottom line is you have their money, not the other way round. Sovereign and Resimac are examples of non-bank lenders, both really strong and well funded by mainstream banks.
The main casualty of the RBNZ decision is the young Kiwi first home buyer. Their place has been taken by investors from both overseas and local, particularly at the lower end of the market where rents have increased directly as a result of the directive. We noticed a dramatic increase in investor enquiries post the start of the LVR restrictions.
Young families unable to come up with the required deposit have been forced to continue to rent fuelling an increase as new renters are also on the up. With no restrictions on foreign ownership and no capital gains tax Auckland is a prime target for property investors both foreign and domestic.
The real issue with the Auckland market has always been supply. New Zealand may be a free country but you can’t live on the beach and whether you rent or buy, someone has to own the property. Consents may be up but with possible Iwi intervention the whole consent process is fraught and expensive so don’t expect the housing shortage to be solved any time soon. Construction costs are also up. Net result will be an ever upward increase in property values.
So what next?
As of April 1 the Banks will know what they can lend in the high LVR space and my guess is one in 10 mortgages will be 85% and above, so easier than now. Assuming that happens then prices will come under even greater pressure so another option the RBNZ has is to raise interest rates. This will happen but at a huge risk to the overall economy if taken too far, a fine balance is needed so expect a small rise in March followed by another later in the year.
Rates. The average mortgage rate in New Zealand is around 8% so we’ve been pretty lucky in recent years. Fixed rates have already moved by around 0.5% since the beginning of the year so if you are on floating, now may be a good time to look at fixing at least part of the mortgage.
For the next few years, in my opinion, Auckland will continue to surge ahead as a desirable place to live with limited supply of property. Sixty-five people a day are moving to the city, both from overseas and from the rural areas. Immigration is at a 10-year high and applications are still increasing according to Immigration NZ. Net result, increased house prices and more and more people prepared and able to afford them.
Nothing has changed
Jeff Royle CEO iLender Auckland
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