REINZ wants loan-to-value restrictions lifted for first-home buyers
The Real Estate Institute is calling for a review of loan-to-value restrictions as property market turnover drops to its lowest non-Christmas level since 2014.
The number of properties sold across New Zealand in July fell by a quarter when compared to the same time last year, and the number of properties sold in Auckland fell by 30.6 per cent, the institute's latest data shows.
That is the lowest level of sales, apart from Christmas periods, since August 2014.
"The number of sales across New Zealand has dropped significantly in comparison to the same time last year," chief executive Bindi Norwell said.
"A key reason for this is that the two biggest hurdles to purchasing a house right now are access to finance as the banks continue to tighten their lending criteria and LVR restrictions. This creates an intimidating barrier to entry to the real estate market, particularly for those saving for their first home."
LVR restrictions were introduced in 2013 for all buyers, limiting the amount of lending that banks can do to borrowers with a deposit of less than 20 per cent, to no more than 10 per cent of total lending.
Last year, new LVR rules were brought in for investors, removing their ability to borrow with less than 40 per cent equity.
"No matter where we are in the country, agents tell us that there are a good number of buyers out there, but that these two issues are impacting both investors and first-time buyers alike. When you throw in an election, winter, school holidays and one of the wettest Julys on record, it's little wonder the number of properties sold last month fell so significantly," Norwell said.
"The LVR restrictions have done their job of slowing the market, but now it seems they are acting as a handbrake which is why REINZ is calling for LVRs to be reviewed for first-time buyers."
She said helping first-home buyers into a property was a good thing for the country. "So many people are renting and we've really got to start helping people into the market."
Having to come up with a 20 per cent deposit in most cases was too restrictive, she said. "We all want to have the Kiwi dream of buying a property and not having to pay huge amounts of money in rent. It's a positive thing for our country. Now is the time for a review. it's an important issue."
But Kiwibank chief economist Zoe Wallis said lending data did not back up the institute's stance.
"Recent changes to property investor lending LVR restrictions have instead opened up some opportunities for first-home buyers and other owner-occupiers. The latest round of LVR changes has meant that the percentage of bank mortgage lending to investors has fallen from 33 per cent of all loans in July last year, down to 24 per cent currently. Over the same time period the share of lending to first-home buyers has increased from 11 per cent to 14 per cent."
She said more moderate house price growth, as the LVR rules were intended to create, should help first-time buyers.
Gareth Kiernan, chief forecaster at Infometrics, agreed it was not so straightforward.
"Blaming the drop-off entirely on the LVRs is it a bit harsh. It's also possible that the more recent declines in sales are due to the Australian factor rather than the LVRs.
"Secondly, the REINZ isn't really thinking about the purpose of the LVR restrictions, which is to improve financial stability and resilience. The fact that house sales activity and house price inflation have slowed are incidental – the Reserve Bank is ultimately trying to reduce the risk on banks' balance sheets.
"Suddenly relaxing the LVRs just because the market has softened doesn't make sense if the bank thinks that lots of buyers are still out there ready to drive the market back up again and add more risk to the banking sector."
The REINZ House Price Index, which measures the changing value of property in the market, showed that the value of dwellings in New Zealand overall increased by 1.2 per cent. Excluding Auckland, national values increased by 7.5 per cent, whereas in Auckland dwelling values have decreased by 2.1 per cent.
Compared to one year ago, median house prices for July increased in all but four regions across the country.
Auckland was down 1.2 per cent to $830,000, Bay of Plenty was down 1.2 per cent to $489,000, West Coast was down 23.5 per cent to $195,000 and Canterbury down 2.3 per cent to $420,000.
The national median price increased by 3.4 per cent year-on-year to $518,000 (up from $501,000) and the national median price, excluding Auckland, increased 6.1 per cent to $415,838 year-on-year.
Four regions also experienced record median prices year-on-year – Northland up 23 per cent to $455,000, Hawke's Bay up 25.8 per cent to $400, 000, Nelson up 20.2 per cent to $493,000 and Otago up 15.3 per cent to $400,000. Norwell said there was still "huge" growth in some provincial centres.
"With the majority of the country experiencing price rises and four regions experiencing record prices, it shows that demand is still strong across significant portions of the country. Most notably this growth is seen in provincial towns rather than the bigger cities - much of this can still be attributed to people looking to exit the bigger cities for more affordable and relaxed lifestyles," Norwell said.
"While the median house price for Auckland has fallen slightly, the housing shortage coupled with the increased population growth means the City of Sails is likely to be protected from significant price decreases in the short term."
The number of properties available for sale nationally rose by 1441 (7 per cent) compared to 12 months ago.
Excluding Auckland, the number of properties for sale fell by 1207.