Last week the Property Institute of New Zealand made a direct plea towards the Reserve Bank of New Zealand (RBNZ) to exclude first home buyers from the Loan to Value (LVR) restrictions.
This is something the Property Institute of New Zealand have stressed for a while, and with the recent figures released by Statistics New Zealand highlighting that 78 percent of New Zealand renters are unable to afford a 20 percent deposit, it has added fuel to the fire.
Property Institute Chief executive, Ashley Church says, “The main barrier to first home ownership isn’t housing affordability or the cost of servicing a mortgage it’s the LVR restrictions. That means that a generation of kiwis can say goodbye to a first home because of an artificial barrier, created by the Reserve Bank, to solve a problem which almost certainly doesn’t exist”.
However, Housing Minister Nick Smith has said the policies have helped 16,000 New Zealanders buy homes over the last 18 months and that supply would soon improve.
Are these really a huge barrier for first home buyers?
It’s certainly one major barrier – there is the factor of the supply problem as well though.
Should first home buyers be exempt from the LVRs – or can the banks help?
Given investors have been squeezed out of the market in a big way by the RBNZ updated restrictions, banks should be able to do more lending towards first home buyers on a less than 20 percent deposit. It might also help those who are credit worthy of paying off a mortgage, but for some reason cannot qualify for Welcome Home Loans, for example, high salary earners with just a five percent deposit.
If first home buyers do become exempt from the LVRs – what does this mean?
It means more people with a good enough income to service a mortgage, but who don’t qualify for a Welcome Home Loan, can still have a chance to get on the ladder. Five percent genuine saved deposit should be a good enough deposit if borrowers can show they can easily service the debt without stress. Banks factor in healthy buffers into their servicing calculators to help mitigate this risk of affordability and borrowers over-committing themselves. The Responsible Lending Code has also reinforced this.
At the moment, banks are still limited to only allocating 10 percent of their loans to high LVR first home customers. It would be good to see the RBNZ allow banks to give out, say, 15-20 percent of their lending to low-deposit borrowers. Also, banks’ high LVR approvals usually only last 60 days due to their limited supply (then need to be renewed/reapplied for) – 60 days is not enough time to find a house – so good quality borrowers are finding it hard just to get finance before they even hit the large challenge of finding a house!
Given the current situation, make sure you keep saving with KiwiSaver or join now if you haven’t already! Get help from your Craig Pope mortgage adviser as to what options are available and to help you put a plan in place.