Low-deposit rule change welcomed

17:54, Dec 10 2013

A new exemption to low-deposit mortgage rules is "great news" for builders and people looking to get a new home, says one of Christchurch's big building firms.

The Reserve Bank yesterday announced that new home builds would be exempt from the tighter mortgage lending restrictions that came into effect on October 1.

The building industry raised concerns the restrictions on low-deposit loans would limit the number of homes being built, affecting the Government's efforts to increase supply.

Mike Greer, of Mike Greer Homes, said the announcement was "fantastic news for the building industry".

"We saw that sales dropped dramatically . . . it was massive for us," Greer told The Press.

He said before the restrictions were introduced, house and land packages were attainable for people with smaller deposits.


"Banks viewed house and land packages as a completed house rather than a construction zone, which meant they were likely to lend a lot more," he said.

There was a big decline in sales the month before the new rules came into play because "the banks were worried about all the pre-approvals out there".

He said the Reserve Bank had not realised the restrictions would end up limiting supply.

"Fewer new houses being built is the opposite of what they were trying to achieve."

Greer believed those people who had been forced to pull the plug on their new home plans would be able to reconsider.

In most cases, the restrictions had affected "people who need a new home the most", including first-home buyers and young families. "All our Christmases have come at once . . . it really is great news."

The new exemption would apply to all loan applications for new residential builds from October 1, when the rule was introduced.

Reserve Bank Deputy Governor Grant Spencer said the bank had decided on the exemption after consultation with the construction industry.

"While high LVR [loan-to-value ratio] construction lending is only around 1 per cent of total residential lending, it finances around about 12 per cent of residential building activity," he said.

"This exemption means that low-deposit lending will fall outside the 10 per cent speed limit if it is financing the construction of a new house or apartment."

It would help support the supply of new housing and reduce some of the pressure arising from excess demand in the housing market, Spencer said.

Ngai Tahu Property chief executive Tony Sewell said the exemption was "just good common sense".

"New Zealand has a housing shortage and that shortage will be fixed with new houses."

President of the Canterbury Registered Master Builders Association Clive Barrington said concerns should have been listened to before the rules were introduced.

However, there was so much work in Canterbury post-quake that the effect of the restrictions had not yet been felt.

"But we would have seen it in the long term because if people couldn't front a [20 per cent] deposit then they can't build," Barrington said.

Labour housing spokesman Phil Twyford said the Reserve Bank had "bowed to the inevitable".

"This shows that the Government's housing policy is a shambles . . . how did they not think through the impact of these lending restrictions?"

The Press