With New Zealand now undisputedly a seller’s market, the dream of owning their own home for many Kiwi’s looks to remain just that – a dream. Mortgage rates are on the rise, house prices are climbing steadily on the back of supply shortages, restrictions on high LVR lending are about to be dropped with all the certainty of a guillotine by the Reserve Bank and projected OCR hikes next year hang brooding over the market like an ominous cloud.
As the situation in NZ continues to fuel the fear of another housing bubble burst, the answers to the big questions remain elusive. How is it possible to make housing more affordable for the average Kiwi home buyer? What’s to be done to solve the housing shortages (particularly in Auckland and Christchurch)? How do we ensure that Kiwi homes go to Kiwi families and not offshore investors? Is urban sprawl a solution? How can we get more first-home buyers onto the real estate rungs of the property ladder?
As yet, the proposed solutions to these questions have done little to assuage the fears and doubts of borrowers in the market for a new home. There seems to be, wherever one turns, a clash of priorities between those looking to buy and the policy makers themselves - the incoming restrictions on high LVRs being case in point. With banks now being restrained to limit their lending on low equity home loansto an amount not exceeding 10 percent of the dollar value of their new housing lending flows, many first time home-buyers are finding their fingers being pried one by one off the rungs of the property ladder.
Its big fish decision making that is geared at having an impact on a macro level, unfortunately affecting the smaller fish adversely in the process.
The move, which has sparked no small amount of controversy, is self admittedly based on the RBNZ’s priority of cooling the housing market as opposed to helping first-home buyers secure an affordable home mortgage. Its big fish decision making that is geared at having an impact on a macro level, unfortunately affecting the smaller fish adversely in the process. Of course, where there are losers there are inevitably winners – in this case the bigger fish with the healthier income streams, the investors and of course the sellers.
As those families currently living in the central Auckland areas begin to feel the financial fingers of higher mortgage repayments and interest rates starting to choke their cash flow, the decision to sell at record prices and head to the outskirts is an easy one to make – thanks to the long line of desperate buyers queuing at their doors.
For now, house prices will continue to surge and with them the equity demanded of borrowers by the banks. The little fish with the big dreams are destined to be devoured by the bigger fish with the financial clout to be able to compete all the more fiercely in the high equity pond for the best deals. Those looking for a more affordable mortgage rate may be forced to swim in another pond, or alternatively, to implement a smart savings strategy that will allow them to accumulate the money necessary to put down the deposit on that dream home - until the policy makers figure out a way to answer the big questions, that is.