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No end in sight for LVRs

There is minimal chance of the Reserve Bank easing LVRs for investors and late cycle investors could feel the pain, a prominent economist is warning.

Friday, August 18th 2017, 11:20AM 1 Comment

by Miriam Bell

BNZ chief economist Tony Alexander

In his latest weekly update, BNZ chief economist Tony Alexander said the Reserve Bank made it clear in their MPS last week that they still see a risk the current market pause could be temporary.

Annual house price inflation has slowed nationwide to 5% while Auckland has slowed to 2% but, since 2013, the annual pace of growth in lending for housing purposes has gone up to 7.7%, he said.

“It is difficult to believe that the Reserve Bank feels there is yet sufficient restraint in the growth of housing lending.

“Last week’s statement shows they are not yet convinced of ‘better balance in the housing market’.”

That means that the Reserve Bank is highly unlikely to lift the LVRs, particularly for investors, in the near future.

Alexander said that instead the next 12 months will bring pain for late-cycle investors hit by the 40% minimum deposit requirement and tighter bank lending rules.

“A lot of investors have over-extended themselves in the past three years and their hopes of new investors taking property off their hands at a tidy profit have been dashed.

“The next layer of the investor pyramid has been stripped away by the need to raise a 40% deposit and banks steadily tightening debt servicing criteria.”

Further, in Auckland, there is now an over-supply of properties which can be intensified because neither the finance nor the builders are there for development.

Alexander said that means lots of investors are now sitting on potentially highly geared up properties they cannot get anyone to buy and develop.

“They are nervous and getting worried that any profit on paper they may have achieved the past year or two could be disappearing fast. They are starting to get stressed.

“The FOMO which drove them to gear up and buy any old piece of property last year and before is now working in the opposite direction.”

In his view, this means many investors will be looking to offload properties more cheaply and so the market has turned in favour of first home buyers – who he doesn’t believe are being held back by the LVRs.

This runs counter to recent calls from REINZ, various real estate agents and even the Prime Minister to lift the LVRs for first home buyers.

Alexander said the last thing first home buyers need is for extra demand to be thrown in to the market thanks to LVR reductions.

Read more:

Call for LVR review as sales plunge 

PM rules out DTI ratio idea 

« Free Investment Property Showcase Events: Auckland, Wellington and ChristchurchThe housing market driver that’s not going away »

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Comments from our readers

On 19 August 2017 at 12:30 pm Maxwell K said:
"The FOMO drove them to gear up and buy any old piece of property..." Rubbish. They drove themselves.

I think we also have to distinguish between developers and investors in regards to the residential market.

Many investors in my view are in the category of speculators, flip operators or turn and burn merchants as many are referred to. They buy a property, may not add any value and hope to flick it on for a profit very quickly due to market demand.

There is a saying for such residential speculators:

" there are 2 times in a mans life when he shouldn't speculate in residential property.
1. When he/she hasn't any money and,
2. when they do have money.

Developers on the other hand in my view are quite different and we need them. They usually add value to a property, are risk takers and usually will have a bit of skin in the game. We need such people just as we need innovative entrepreneur types in industry, science, technology and so on.

This latter group I feel should have the rules relaxed so they can have access to ample funds subject of course to certain terms and conditions so they can develop more sections and residential units.

Insofar as easing deposits for residential buyers I am not in favour of such.

Let get our nation into a savings mentality rather than a spending one where we have witnessed so many home owners who have used the equity in their homes as a ATM machine. Many of the younger generation need to learn the difference between a want and a need and save.

Of course the REINZ and its members want the easing of LVRs for only one reason. House sales have fallen and subsequently their incomes have also fallen quite drastically in some cases.
Real estate sales people are paid on results and by way of commission in the main so course they are hurting and will just as they did in the past squeal like a stuck pig for anything that will boost their sales up.

Household and individual debt is at a record high and sooner or later the piper will demand to be paid.

Not sure when but it will happen.Interest rates will rise and I am picking those that have paid a 20 percent deposit to get into their first home will be thankful they did and have some breathing space should also there be a unexpected downturn in the economy.


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Lender Flt 1yr 2yr 3yr
AIA 4.55 3.19 3.19 3.49
AIA Special - 2.69 2.69 2.99
ANZ 4.44 3.15 3.25 ▼3.39
ANZ Special - ▼2.55 ▼2.69 ▼2.79
ASB Bank 4.45 3.19 3.19 3.49
ASB Bank Special - 2.69 2.69 2.99
Bluestone ▼3.49 ▼3.49 ▼3.49 ▼3.49
BNZ - Classic - ▼2.55 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.25 3.29 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union South 5.65 4.75 4.75 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.60 2.65 2.80
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 3.99 2.58 2.68 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.40 3.54 4.00
Kiwibank - Capped - - - -
Kiwibank - Offset - - - -
Kiwibank Special 3.40 2.65 2.79 3.25
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.29 3.19 3.49
SBS Bank Special - 2.79 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 ▼2.69 ▼2.75 ▼2.99
The Co-operative Bank - Standard 4.40 ▼3.19 ▼3.25 ▼3.49
TSB Bank 5.34 ▼3.35 3.49 3.79
TSB Special 4.54 ▼2.55 2.69 2.99
Wairarapa Building Society 4.99 3.75 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.55 2.69 2.79
Median 4.55 3.19 3.22 3.39

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