First-home buyers hit hard by moves

22:22, Nov 28 2013

Lending limits aimed at curbing New Zealand's soaring property market have more than halved low-deposit borrowing in one month.

Reserve Bank figures also show that investment in residential buildings soared last year, back to pre-financial crisis levels when New Zealand's housing market last peaked.

While industry experts are bemoaning the impact on first-home buyers, real estate agents say the measures are also preventing existing homeowners from upgrading, curbing the supply of new homes on the market and pushing up prices.

The figures show lending to those with deposits of less than 20 per cent halved in October following the introduction of the Reserve Bank's lending LVR (loan-to-value ratio) limits.

The restrictions cap low-deposit lending at 10 per cent of new loans.

Reserve Bank Deputy Governor Grant Spencer revealed yesterday that high-LVR lending fell from 25.5 per cent of all lending in September to 12.8 per cent in October.


It showed banks were adjusting to the new policy and were well placed to meet its limit by the March target.

"The reduction in high-LVR lending will help to reduce the risks of a sharp correction in house prices in an already overvalued housing market. Such a correction could be damaging for the financial sector and broader economy," he said.

Banks were still managing mortgages approved before the limits were imposed and the share of high-LVR loans was expected to fall further in the coming months as those approvals ran out, he said.

It was still too early to say what effect the limits were having on house prices.

Westpac senior economist Michael Gordon said the figures merely showed a shift in the mix of home buyers and the restrictions would have little impact on house prices.

He pointed to the fall in the dollar amount of high-LVR lending from $1.19 billion in September to $571m in October being partly offset by an increase in low-LVR lending, to buyers with more equity, from $3.5b to $3.9b.

This would favour wealthier borrowers as banks sought to increase their overall lending in order to lend more low-equity loans.

"We concluded that lower mortgage rates, along with reduced competition from first-home buyers, would create quite favourable conditions for those investors able to muster up a large enough deposit.

"Consequently, we expected only a modest impact on the rate of house price growth."

Prime Minister John Key said it was early days but the figures showed the banks were doing as they were told and lending was still at a high level.

The alternative was the Reserve Bank raising interest rates which would affect everyone negatively, he said.

The Southland Times