There is growing concern that housing continues to become out of reach for many New Zealanders. Over recent weeks we have been told:
Demand still outstrips supply when it comes to the housing market
House prices continue to rise with last month average price across New Zealand exceeding $1 million for the first time.
However, as investors let’s look at it from the other direction. This environment is supporting investor landlords. We do not see demand for rental properties falling any time soon due to:
Interest rates rising – small steps to date but month on month increases will have a huge impact on people ability to finance a purchase.
The Reserve Bank is looking at introducing Loan to Income ratios whereby the amount people can borrow on mortgage will be directly related to their income.
Banks tightening up on the loans they can / will make to borrowers who do not have the necessary 20% deposit. Rapidly increasing build costs coupled with a rapidly worsening material supply chain is making the time-frame to buy new property unattractive to many people.
Over 30,000 people, currently living overseas, are applying for spaces within the MIQ system. Not all of these will be wanting to return permanently but even if 20% did that’s over 6,000 accommodation units required.
More and more people are viewing long term rental as their housing solution. This is in line with long held trends overseas especially in Europe.
Housing is a social issue that is not going to be resolved quickly.
An example of things toughening in the banking sector is Kiwibank and their decision to ‘pull the pin’ on pre-approved home loans for buyers with less than 20% deposit. This has caused considerable upset to many of their clients who had previously received a pre-approval. This move is directly hurting those that the Government and the reserve bank have openly said they were trying to help. Kiwibank, in turn, blames the Reserve bank who has limited the number of ‘risky’ loans banks are allowed to give to home buyers with less than 10% deposit to just 10% of their total lending.
Changes to the Credit Contracts and Consumer Finance Act (CCCFA) come into effect from December 1st. Lenders will be required to actively review information provided to them by borrowers in more detail to ensure they fully understand a borrower’s circumstances before approving a loan. The Banking Ombudsman has warned borrowers to ‘allow time, be prepared, be clear’ when submitting an application.
Top tips from mortgage advisors and banks:
Start the process sooner.
Don’t rush an application.
Avoid time pressures. Know in detail your expenditures (there are 2 sides to every application – income and expenditure).
Your historic bank statements will be placed under the microscope.
Non-essential expenditure will be assessed to determine if the behaviour is habitual.
Have a strong credit history.
Have a realistic budget.
Display good savings habits.
Allow for associated costs such as a builder’s report, lawyers’ fees. Advisors are in agreement – it is only going to get more complex, take longer and overall be harder looking into the future