Investors cash in as first-timers lose out
Property investors are going on buying sprees while first-home buyers remain locked out of the market, but rising mortgage rates could help turn the tide.
The latest Reserve Bank figures suggest its new loan-to-value ratio (LVR) "speed limits" are having the desired effect as would-be home-buyers with less than a 20 per cent deposit are effectively shut out of the market.
High LVR lending has shrunk by 79 per cent since rules were introduced in October.
But iLender broker Jeff Royle said any first-home buyers sidelined by a lack of equity had simply been replaced by cashed-up property investors.
"I've had existing investor clients who bought nothing up until October and then they went on a buying spree," he said.
Investors knew people who were no longer eligible to buy houses would be stuck renting for longer. "So the perception is that rents will go up. Therefore, investors are jumping in," Royle said.
He said the property market was still seeing fairly aggressive price rises, especially in Auckland.
"And so, nothing's changed," he said. "It's pissed off an awful lot of young Kiwis who are sitting back watching investors - both domestic and overseas - buying properties they can't."
New Zealand Property Investors' Federation president Andrew King said some aspiring property investors with little equity had also been sidelined by the new rules.
But he agreed the reduction in demand would create opportunities for rental property owners to fill the void.
King said landlords were usually more price-sensitive than first-home buyers, as they calculated cashflow and investment returns.
"In general they try to buy below market rates," he said. "[But] first-home buyers tend to follow the heart, rather than the head."
The prospect of a series of interest rate hikes, expected to begin in March, would also help reduce demand from investors wary of higher servicing costs.
"In general, rising interest rates will put people off," King said.
That wouldn't happen overnight, with many investors still interested in buying over the next six months or so. "People may still think it's worth doing it, because of the capital gains."
Westpac predicts the heated property market to start losing steam within the next month or two, and prices to stagnate or fall some time next year.
The Reserve Bank introduced the LVR rules to try to prevent a buildup of both credit growth and house-price inflation, which could threaten the stability of the financial system.
Sunday Star Times