New cost threat to first-home buyers
A strategy being used by beleaguered first home buyers to get onto Auckland's expensive property ladder is likely to get more costly, and some are not happy about it.
Westpac has has noted "an increasing trend … for first home buyers to buy their first property in more affordable outlying suburbs, rent it out, then live in rental accommodation close to the city."
It's a strategy that offers hope to young people otherwise facing a seemingly insurmountable task of buying near the places they work.
But the Reserve Bank's plans to require banks to hold more capital for investor loans, look likely to make buy-to-let loans more costly, which has one advocate for first-time homebuyers calling for exemptions for first-time property buyers.
The Reserve Bank was considering three possible alternative ways to define loans to residential property investors: If the mortgaged property is not owner-occupied; if servicing of the mortgage loan is primarily reliant on rental income; and if servicing of the mortgage loan is at all reliant on rental income.
All three would catch first-time homebuyers planning to rent out their home while renting elsewhere, according to mortgage brokers.
But mortgage broker Karen Lewis, the founder of The First Home Buyers Club, said: "There are more first-time home buyers buying property as an investment while continuing to rent. It is their stepping stone onto the property ladder, and it would be really disappointing if they were somehow penalised."
"My wish would be that if they go down this track, they have some sort of exemption," Lewis said.
David Whitburn, a property investor and developer of affordable housing in Auckland said such an exemption would be fair, but questions whether it would be practical.
"There should be an exemption," he said. "They should be encouraging first-time home buyers, but how would they police it? Are you going to go checking on that?"
The Reserve Bank has refused to exempt first-time home buyers from the high loan-to-value restrictions (LVR) it introduced in 2013.
The young lacked a voice to fight moves of their elders that would impact their interests, Lewis said.
"Our vision is to be the voice for first home buyers and to speak on their behalf. They need an advocate for them."
Just how much the Reserve Bank's plan would drive up the cost of loan-to-let mortgages is unknown, but Loan Market's Bruce Patten said it did threaten to make it harder for those whose house-owning strategy was buying to let.
"There are a lot of first home buyers buying their first home as an investment now as opposed to owner-occupied. They will definitely get caught up in this change when, if and how it happens," Patten said.
What the price effect, and the flow-on effect on rents will be is not known, but Patten said other countries had markedly different interest rates for owner-occupied and buy-to-let mortgages, which were considered more risky to lenders.
In some other countries the differential can be large. In Britain, Barclays's two-year fixed interest rate for owner-occupied mortgages is about 4 per cent. For buy-to-let mortgages, it is about 4.9 per cent.
A 1 per cent differential would cost $1000 a year per $100,000 of debt.
Patten said such moves impact on those trying to get onto the property ladder, pointing to the LVR restrictions.
But the Reserve Bank wanted to drop the OCR further, but would not do so unless it has more tools in its toolkit to stop house prices running away, Patten said.
Mortgage broker Campbell Harris has seen a rise in the numbers of people buying outside of Auckland with the long-term aim of moving to the home they have bought in another town or city.
"Long story short, people doing that are going to be caught," he said.
Squirrel Mortgages' John Bolton doubts the price rise for investor loans will be large.
Bolton said it was wrong to expect the Reserve Bank to moderate the housing market.
The Reserve Bank's job was to ensure stability of the financial system and to control inflation, Bolton said.
The Government's job was to get the economic settings right to ensure enough homes were built.
Bolton said the Reserve Bank wanted to curb rising house prices and as with the LVR restrictions before it, the investor loan capital requirements were designed to slow new lending.
Mortgage broker Karen Tatterson said such is the heat in the Auckland market that: "we see houses selling for $200,000 to $300,000 more than what the vendors would sell them at. If you haven't got the money, or the equity, that makes it really tough."