NZ Market Update January 2018
From January, the Reserve Bank of New Zealand loosened LVR restrictions on banks trading in New Zealand. LVR is essentially the amount a bank is allowed (under Reserve Bank rules) to lend against the value or purchase price of a property.
To try and slow the everstrong NZ property market, the Reserve Bank had put limitations on the banks some years ago. These were enforced up to 2017, allowing the banks to only lend to 10% of their portfolio if clients have less than a 20% deposit for an owner occupied property. If that sounds tough, they then imposed a massive 40% deposit restriction for investment properties to be paid in cash or equity from another supporting property.
The changes that came into effect early this year have increased the threshold for banks, who can now lend up to 90% to owner occupiers. Under new rules, this has meant banks are able to have this group make up to 15% of their portfolio. While that may not sound like much, it increases bank lending by 50%, almost taking them back to their capacity before the restrictions, where lending up to 90% used to be the norm.
Changes to investment lending have also taken place, with a decrease in the required deposit or equity from another property down to 35% of the purchase price. Whilst this is still harsh, as a Loan Market adviser, I have exclusive access to non-bank funding, allowing investors to buy rental property with only a 20% deposit or equity from another property. This new non-bank product is available now.
So will this available funding have any impact on interest rates?
While not directly linked to available funding, interest rates could be impacted if this funding pushes housing inflation up. The majority of lending in New Zealand is sitting on fixed interest rates funded through overseas markets (predominantly USA & Europe), our interest rates can be linked to the growth and recovery of these markets, which we are starting to see today.
All this means is there may finally be some upward interest rate pressure in 2018, but the impact of this will be minimal with current interest rates expected to remain low throughout the first half of the year. Any potential increases are forecasted to be small and towards the back end of the year.
In conclusion, it’s a good news story from our end, with all of these changes collectively equating to more available funding in 2018 for your clients, which will in turn lubricate the property market for buyers and vendors alike. If you have any further questions on these changes, please don’t hesitate to contact a Loan Market adviser.