With the recent announcement of National’s 2013 budget, there are a few surprises that are set to alter the current residential mortgage market. This is largely due to the recent boom in Auckland housing demand and pricing, with mean house prices reaching record highs relative to the average household income.
As a result of this, economists and government officials are growing increasingly worried about the long term stability of New Zealand’s economy, and fear a collapse similar to that of the American housing market during the last recession.
In order to prevent this, the Reserve Bank Governor Graeme Wheeler and Minister of Finance Bill English have signed a Memorium of Understanding to create “macro-prudential tools” to help address this issue.
One of these governmental measures intended to stabilise the housing market is to decrease the amount of high LVR (Loan to Value Ratio) residential mortgages which banks can sell, along with enforcing other stipulations on lending eligibility.
Essentially, the four big banks are not going to be able to continue to supply High LVR Mortgages at the same rate and to the same range of clientele. Potentially limits will be imposed and likely those with ‘stable’ incomes and good credit history will be favoured. As a result of this,the type of mortgages on offer to the average consumer may become increasingly limited.
For example, currently 24% of ANZ and Westpac’s new residential property loans can be considered to have a high LVR value – and under this scenario the government could potentially limit these high LVR loans to just 10%. While this reduction is hypothetical, it is likely that banks will have to alter their sales in a similar manner. This may make it harder for those without large savings to secure a mortgage from a major (and often cheaper) lender.
This can already be seen with both ASB and Westpac, who are shifting their strategies to entice customers seeking low LVR loans in order to remain within these governmental constraints. Within the last week, both banks have dropped their interest rates to incredible lows- between 4.94 and 4.95 percent respectively for clients with a deposit of over 20% of the loan value. However, there are certain provisos. These may include: that you have to be an existing client, you have a good credit history and/or that you meet a minimum loan size (usually in excess of $100,000).
The bottom line
Whilst the mortgage market has recently been more receptive than ever before, this is unlikely to continue to the same degree. It will again become more difficult (although not impossible!) to secure residential mortgages with small deposits, particularly with mainstream lenders.
A small ray of sunshine
The marketplace appears is remaining competitive, and therefore all hope is not lost- interest rates will likely continue to drop to record lows as banks
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