Overseas Investors, Government Initiatives and Banking Products First Time Buyers

Overseas Investors, Government Initiatives and Banking Products First Time Buyers

I felt it quite timely given recent moves by our major banks to tighten lending criteria for foreign buyers in line with moves in Australia. Major NZ banks will now no longer consider overseas income to support lending applications. There is some wriggle room for Australians in pockets though.

Overseas Investors

This has been a hot topic in NZ media for years and the finger of blame has been pointed aggressively at this group for feeling house price inflation.

However before addressing the accuracy of those accusations it’s interesting to note while property speculation by overseas investor has gained numerous headlines the recent spate of mortgage fraud in Australia primarily by Chinese borrowers has received little attention in mainstream media. It has been suggested by some industry commentators that this is primary reason behind Australians banks recent restrictions on foreign lending which have been mirrored as noted above in NZ. Fraudulent Chinese home loans in Australia have been speculated to put at risk over $1billion in mortgage lending and in my eyes is without a doubt is a catalyst for this decision.

Chinese Fraudulent Home Loans In Auckland?

As we have seen New Zealand follow suit and that would suggest they are taking a cautious approach until they know exactly what their exposure will be to the same issue here. It will be interesting to follow this story and see if anything is disclosed in New Zealand.

The reality is that banks will possibly feel no need to disclose to RBNZ as they have securities and will be low LVR (Loan to Value Ratio) too so not a financial risk to the banks. It appears a victimless crime, however, there are victims and that is other people looking to purchase a property that is inflated due to this issue. The other victims are Australians and other nationalities who cannot invest or are severely hampered by these changes.

Australians

The tragic loser in all of this is our Australian neighbours with their rights to purchase in New Zealand severely compromised. Some banks have closed the doors completely, others made the process tougher with larger deposits. If you are a self-employed Australian there are no major banks interested in lending to you it seems.

It’s just a shame as it appears possibly due to fraudulent Chinese documentation that the banks would classify Australian documents as difficult to verify.

USA
One other nationality that can now be considered is the United States. I am putting this down to the tax treaty between the countries. Overseas income from anywhere else is off the table.

How many Purchases were Actually Overseas

Based on LINZ data, properties sold to March 2016 were around 12,000 with less than 500 being sold to overseas income. (Although along with many others I do find that hard to believe). Then how is this change by the banks going to do anything to the overall market? It does however mean as long as the new rules around information provision by non-resident buyers are followed, cashed up overseas buyers can now have a field day.

Government Initiatives

With our doors close to being closed for many of our friends around the world it may be a good time for the Government to review the $450,000 HomeStart grant cap here in Queenstown and no doubt the various caps throughout New Zealand.

We can receive $5,000 for an existing property or $10,000 for a new build under the current scheme. Great in principal but please provide me some property options to consider at that level in Queenstown.

Why a Cap so Low

If we need a cap at all why not make it like it is in Australia $750,000 or up to $1,200,000 like in UK? Just because it’s your first home does not mean it needs to be bottom of the barrel does it? As long as you can service the debt why can’t you buy a house at that level? It will after all improve the quality of stock in New Zealand if building.

Government Backed Home Loans

Currently there is the Welcome Home Loan product which is great and allows clients to purchase a new home with as little as 10% deposit and it can be fully gifted. Brilliant initiative, the only trouble is it is also capped at $450,000 so cannot be implemented in Queenstown as there is essentially no property available at this level.. Let’s get the cap up to a level that is relevant and if a cap is really necessary revise it every year with the market in said area. Why not reduce minimum deposit requirement to 5%. (currently 3% in USA and 5% in UK) for Government backed loans. The requirements for supporting documents are more stringent and clients must be squeaky clean, great!

Banks 1st Time Buyer Products

In tandem with the Government creating more relevant and robust products the banks could well consider a variety of options to assist first time buyers.

Today there is not one product to cater, not even a sugar coated one. By introducing ‘Buy to Let’ mortgages for investors, which are technically here already now but just haven’t been named it as such nor implemented by all banks, it should be an appropriate time to consider supporting the first time buyers. They will generally be using one bank or the other services for the next 30 years so a discount for the first two to five years would go a long way in assisting them. Why not extend to 50 year loan term for your first mortgage. Remembering the average mortgage life is five years before homeowners move on or refinance so it's unlikely many will actually be holding that mortgage for the full 50 year term. The reduction in repayments for the duration of that mortgage would really help the first time buyers get into the market.

Summary

My suggestions could all be shot down but the point is, we need creativity in our products to cater for not only different circumstances but stages of life. Opportunity knocks so let’s hope our banks and government hear it.