Lately there has been a lot of focus on the negative ramifications of the new LVR restrictions, such as blocking new homeowners out the market and making mortgages cost more for those with low deposits- that’s if they can secure one at all!
However, outside of the Reserve Bank there has been very little attention to the positives of this policy, and whether they are indeed what is best for the country.
So how are they meant to help our economy?
Deflating the Overinflated Property Market
Currently some of the property market is overinflated with far too much demand for the limited supply of properties. As such, prices are being driven sky-high on properties but there are alwyas opportunities to be had. By the banks reducing the number of people able to compete for these properties (and how much money they have available), housing prices should stabilize to much more rational levels.
Creating Less Indebted Kiwi’s
With interest rates set to rise in the future (who has a crystal ball?) mortgages are possibly going to get harder to repay, and as such the smaller the mortgage, the less likely Kiwi’s are to get into a financial pickle. This is a good reason to lock in your rate. This is especially important considering the current high house prices in Auckland, a small rate rise can increase your payments to much.
Stabilizing National Debt
In a post recession climate, it’s fairly unsurprising that the Reserve Bank is looking to make sure our national debt is affordable. After all, a major contributing factor to the severity of the crisis in the US was the fact that too many people were mortgaged to the hilt in order to live beyond their means. This meant that at soon as pay cuts and lay offs became common, vast sects of the population were left in negative equity, unable to pay their debt and often homeless. Should a downturn occur in our economy (and this is fairly unlikely), the Reserve Bank and Government want to make sure that NZ is not put in a similar situation.
Are These Measures Worth it?
Yes – without a doubt. The Reserve Bank would be idiotic not to try these macro-prudential tools instead of going all out and increasing the official cash rate (and therefore interest levels) first off- that has to be a last resort as it will adversely effect our export industries. Furthermore, if they do work they will sort out some major economic troubles that otherwise come back to bite us if not dealt with soon.
The bottom line:
So some people can’t buy houses right now… So what? In today’s climate having less than a 20% deposit could be seen as foolhardy however how many people can raise $100k in savings! If you can’t afford 20% can you really afford to buy a house and maintain it? It does depend on your situation and cashflow position. Lenders like RESIMAC are lending to people with less that 20% deposit. Drop us a line to get more info.
The silver lining:
The competition for the under 20% deposit loans may make it challenging but there are lenders who specialise in this area. It means that only those with reasonable financial habits and stable incomes are going to get a mortgage – but that maybe you?
While this may seem like cold comfort should you miss out, there are some bonuses for you too. After a consultation with us we can advise you on what your options are and how to position yourself going forward to get future funding. Call 0800 466 369 now.
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