In a time of sky-rocketing house prices, large scale national debt and financial uncertainty, it’s no surprise that the government is worried about the spending habits of its citizens. Since the dawn of the 2009 financial crisis, New Zealanders have been instructed to tighten their belt, lest our property market go the way of America’s.
However, since the slow resurrection of our economy began, so too has New Zealander’s spending. Post recession, New Zealanders are returning to the tried-and-trusted property market as a means of investment- driving up the already sky-high property prices found in our urban centres.
A major facilitator of this has been the highly competitive mortgage market. The low minimum deposits required have meant that the property ladder is accessible to most- a veritable free for all for investors and first home buyers alike. However, the Reserve Bank’s recently proposed lending restrictions may put a stop to all of this.
Reserve Bank Governor, Graeme Wheeler, justifies the decision stating “Housing pressures are increasing risk in the financial system”. But at what cost?
It’s no secret that the cost of living is going up and up and up. In Auckland alone the median house price is six times higher than the median income- an astronomical figure. Results are similar across the country- especially in Christchurch where limited housing availability has caused housing prices to increase exponentially post earthquake.
So what does this mean for potential Auckland home-owners?
For those who are already in the housing market and looking for investments, this won’t make a difference- you have enough security in assets.
But what does this mean for first home buyers? It’s simple- it will become harder, if not impossible, for most to secure a loan. For many, the only way they will be able to achieve the minimum loan threshold is years of savings, kiwisaver funds, and (if they are lucky) money from family. Unfortunately for most, familial help is simply not possible – and they may find themselves shut out of the mortgage market for a long time yet.
Compounding the issue, is the frequency of foreign investors also vying for housing, and with often favourable exchange rates they have the upper hand in these bidding wars.
So what will come of this?
Hopefully, the policy will be amended to include proviso’s for new homeowners, as both the Greens and Labour have indicated they support.
In the event that this is not the case, the unfortunate reality is that new homeowners are going to struggle. That said, it is inevitable that there will be creative ways to get around this policy. Second tier mortgage’s may be one solution, which although costly will allow these potential homeowners to enter the market.
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