The Reserve Bank says risks to New Zealand’s financial system have eased over the past six months and it is time to reduce restrictions on mortgage lending.

Loan-to-value restrictions (LVRs), set by the Reserve Bank, determine what proportion of new lending can go to people with small deposits.

From January 1, up to 20 per cent of new loans will be allowed to be to owner-occupier borrowers with equity of less than 20 per cent.

At present, only 15 per cent of new lending can be to this group. Before the rules were first introduced in 2013, lending to low-deposit borrowers was about 30 per cent of bank business.

Up to 5 per cent of new lending will be allowed to be to investors with deposits of less than 30 per cent. At present the threshold is 35 per cent.

Reserve Bank governor Adrian Orr said households were still exposed to financial shocks, due to their large mortgage debt burden.

“However, both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending. In response, we are easing our LVR restrictions on banks’ new mortgage loans. If banks’ lending standards are maintained we expect to further ease LVR restrictions over the next few years,” he said.

The rules have been credited with taking the heat out of the Auckland property market, particularly in relation to investor activity.

The Reserve Bank says risks to New Zealand’s financial system have eased over the past six months.

ASB chief economist Nick Tuffley said the move was more than he had predicted.

It would provide more stimulus to the market at a time where it was already buoyed by low interest rates, he said, and had shown signs of a late spring bounce.

“It should reinforce activity.”

Infometrics economist Gareth Kiernan said the relaxation for investors was a surprise. At 30 per cent, that is the same level of deposit required from investors as in 2015, when the rules seen to have little impact on investor activity.

But he said the Reserve Bank might assume that it could safely make the downward adjustment now without sparking the market back into life, because the “speculative heat” had been taken out over recent years.

The rules were first introduced in 2013 and have been tweaked many times since.

Real Estate Institute (REINZ) chief executive Bindi Norwell welcomed the change.

“The fact that banks have the opportunity to increase the percentage of new lending from 15 per cent to 20 per cent of their total loan book means there is a chance for more first-time buyers to have access to lending that they haven’t previously had.

“We continually hear feedback from real estate agents around the country that with median prices rising to record levels in the regions that first-time buyers are just finding it too difficult save that deposit to purchase their first home and to get into the property market. Any window of opportunity for young couples to get a foot on the property market is to be welcomed,” she said.

“We also welcome the news that LVRs for investors have been relaxed from 35 per cent to 30 per cent as with the raft of legislation currently facing investors, many have announced their intention to exit the market. Today’s announcement may go some way to supporting the continued supply of rental properties across New Zealand.”

Kelvin Davidson, senior research analyst at CoreLogic, said the move could kick-start sales volumes, but it was not guaranteed.

“Despite the Reserve Bank’s loosening of LVR limits, an increase in lending is not a clear-cut outcome. After all, lenders may choose to continue on their cautious path, especially since today’s Financial Stability Report also highlighted the RBNZ’s view that ‘higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient’. In other words, a requirement in future for the banks to hold higher capital buffers would tend to dampen lending flows.”

BETTER MORTGAGE RATES?

At the moment, banks offer their “special” home loan interest rates to people with equity of 20 per cent and more. They have dipped below 4 per cent in recent weeks.

Buyers without 20 per cent not only miss out on the specials but also pay low-equity margins and premiums on top of standard rates.

Broker Bruce Patten said this month that someone with 20 per cent equity could get a rate around 4 per cent but a borrower with a 10 per cent deposit could pay about 5.5 per cent.

Banking expert Claire Matthews, from Massey University, said it was possible that banks could start to extend their specials to people with less equity.

The competition happening in the home loan market indicated they wanted to lend, she said.

“They’ll be able to do more lending to those people and may possibly be willing to encourage them more than they were in the past. On the other hand the reality is people with smaller deposits are more risky and it makes sense that they should be charged a higher rate. It depends on how willing they are to lend. If one moves then they others probably will because they can’t afford not to.”

-Susan Edmunds

Harcourts’ South Island Regional Manager, Jim Davis, comments on the Christchurch real estate market.

There is no doubt that our market place in Christchurch continues to throw up some interesting surprises. The release of the October sales results by REINZ has showcased the strength of our local economy.

October in our city produced some stunning results as our market continues to thrive despite what some market commentators are trying to get you to believe.  The hard figures indicate that there were some 631 residential sales last month, median days on the market is 36 days, and the median sale price lifted to $474,000.

To provide some context around the figures, the reported sales volume of 631 houses, is an increase of 23% in comparison to September and a massive 31% increase over October last year.  This increase is a direct reflection and relates to what we have been saying for a few months now. The lack of new listings coming on the market over the winter months resulted in the low sales figures that we had previously been experiencing.  These figures were not so much a reflection of a poor market, but rather a reflection of a shortage of stock, as we commented on many previous occasions. Now as we see an increase in available property for buyers to look at, they have been busy again.  Consequently, we have seen a lift in the sales volume as the buyers have more stock to look at in the market. What will be interesting is to see how long this activity lasts for. There is no doubt in my mind we can expect to see the current activity continue right up till the Christmas break and potentially beyond. Quite simply, the current level of interest in open homes indicates that there is still a good amount of buyer activity to come.

The days on the market in recent months has stretched ever so slightly to 36 days. To my mind this is simply a reflection of the fact that there has been an inexplicable drop in the amount of property marketed by Auction.  This phenonium surprises me in this market, and I feel this reflects more on the attitude of the sales consultants rather than the attitude of vendors.  It seems a shame that the method of sale that offers the best benefits to both buyers and sellers has lost some traction.

The reported median price for Christchurch has lifted to $474,000 which is a significant jump and the highest reported median for our city. This does not reflect that prices have taken a considerable jump in recent months. I believe it simply reflects the lack of stock and sales of higher value properties in  previous months and now we are seeing catch-up occur in this sector of the market, consequently with it comes the lift in median value.

So, what can we expect in the next few months, as mentioned I believe we will see strong sales through to the Christmas break period. I believe that the sales consultants prepared to work through the Christmas period will see some good sales result for their extra effort.  After everyone gets back in the new year, I can see no reason why the current activity won’t continue.

The economic indicators for the country are strong, interest rates remain at all time lows, whether despite or because of Trump the USA economy is rapidly expanding, and with it we should see economic activity across other economies.

The recent changes introduced to slow overseas buyer activity will have minimal effect in a few months, as we are still seeing strong immigration levels and so many of our migrants will simply just wait until they have gained residency before they will purchase. Internally we see confidence levels growing in our own business communities as the Government and the country are continuing to show strong economic results.  When you take this all into account there seems to be no serious reason to think things will change greatly.

Locally Christchurch is in very good heart, our city is looking fabulous, and with the completion of the library and the progress made on the convention centre construction, we are really starting to see our city return.

There is still plenty of opportunity for you to complete a property transaction between now and Christmas, should you require assistance, advise or just starting to think about your real estate plans for next year, give us a call today.

Harcourts’ South Island Regional Manager, Jim Davis, comments on the Christchurch real estate market.

With Spring well underway the Christchurch Real Estate Market is continuing to perform in a strong steady manner.
The just released REINZ figures show us there were 511 residential properties sold in Christchurch City during the month of September.

The median sale price achieved was $452,500 with a median sale time of 36 days on the market. The sales volume is up 7% on the same time last year and marginally down on the sales volumes reported for August, creating the very steady market I have been referring to for so long now.

Overall the volume of sold properties is tracking at expected and anticipated levels, and as a result this type of market favours neither the buyer or the seller, but what it does do is show case the Sales consultant who isn’t working and trying a bit harder to get results for all those involved. This type of market highlights the benefits of working with the active, high profile sales consultant who relish’s a bit of a challenge.

In terms of property values, the median sales price of $452,500 while up on previous months is identical to the reported median recorded in September 2016. This is not surprising to me and is yet another strong indicator that prices and values in Christchurch have remained very flat over the last couple of years. Something we have been commenting on for a while now. This is an important point to note, for sellers who purchased in the last few years and who are now looking to resell their property for whatever reason. Capital growth has not occurred to the average property in the last couple of years unless it has had significant modifications.

Harcourts offices in Christchurch during the month of September have seen a big increase in newly listed property as the “traditional spring activity lift” kicks in. Once again this is normal and anticipated, at this time of year.

This increased availability of stock will no doubt flow through into sales and sold properties over the next month or two, provided property owners are realistic in their expectations. There is no doubt that there are plenty of buyers available in the market place, however they are very certain of where they see value in the current environment. It is an exceptional situation now that sees buyers prepared to pay almost “anything” to secure their chosen property. Instead with this balanced market and plenty of newly listed property available, a lot of buyers will simply move on to the next property that catches their attention where they believe the owners expectations are unrealistic.

Auction numbers continue to build again across the region and attract a lot of interested parties into our Harcourts Auctions Rooms. In fact, the auction room is a great environment to see exactly what I have just referred to played out in real life. We are seeing good numbers attending our auction rooms, but sometimes for no apparent reason the Auction clearance rates are coming through erratically. We know and can see interested parties sitting in the room, who are choosing in some cases not to bid to high or in fact decide not to bid at all, but then find themselves involved in a multi offer process immediately after with other potential buyers. It is making for interesting times at the moment for all concerned.

The need for well-trained, well resourced, sales consultants who can do more than just breath, at the moment is more important than ever. Equally having access to a large number of them who all have potential buyers on their books is vital for you to achieve a good result in this current market. I’m sure you won’t be surprised to hear that your local Harcourts office provides such people.

Give us a call, there is a reason why the vast majority of people in Christchurch choose to work with Harcourts.