The property market still scores highly on unaffordability measures
The Reserve Bank of New Zealand is considering bringing in tighter mortgage lending standards, and has proposed restricting high-LVR lending to 10% of all new loans - something CoreLogic head of research Nick Goodall said will “hit first home buyers the most.”
As house price growth continues to slow, the Reserve Bank said that some buyers could face the possibility of negative equity, and has proposed bringing in tougher LVR restrictions to “prevent the problem from getting worse.” However, Goodall said that the property market still scores highly on most unaffordability measures, and many first home buyers rely on high-LVR lending to secure their purchase.
“Most areas are at all-time highs when it comes to most unaffordability measures, well ahead of any historic averages,” Goodall said.
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“At the nationwide level, the typical time it takes to save a 20% deposit now exceeds 10 years, and, in Auckland, it’s more than 12 years. The years to save a deposit measure continues to be a very relevant figure to track, as deposit requirements are set to tighten yet again.”
“In terms of property values, they have continued to grow out of step with incomes. Interest rates have started to increase, and fewer people will be able to borrow the money required to buy at the current prices,” Goodall explained.
“This will be felt around the country to varying degrees, and we may already be seeing this, with some areas coming quickly off very high rates of growth. Both Gisborne and Kapiti Coast have experienced quarterly value increases in excess of 10% at the end of June, but these have pulled back to 2.1% and 3.3% respectively at the end of July.
“In fact, the quarterly rate of growth reduced for 20 of our 21 largest centres.”
Goodall noted that a significant proportion of owner occupiers who borrowed at a high LVR throughout this year were first home buyers, and the proposed requirement to further limit that amount will undoubtedly have a disproportionate impact on that segment of the market.
“In early August, the Reserve Bank proposed a lower allowance for owner occupiers securing finance with a high LVR,” Goodall said.
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“This change is likely to hit first home buyers the most, with the Reserve Bank’s own data showing that three quarters of all owner occupiers who used the less-than-20% allowance are first home buyers.”
“Put another way, 38% of all first home buyers in June secured their first home with a less than 20% deposit,” Goodall added.
“This is equivalent to 12,000 buyers in the last year. With tighter requirements, fewer of those buyers will be able to be active in the current market.”
