The Tightening of the Credit Market is Affecting House Supply
Housing has been a big topic this election and the different parties had different solutions for solving it. But one factor has largely gone under the radar. In our world, we have been experiencing a tighter and tighter credit market. Apart from LVR restrictions the banks have also tightened up the criteria to obtain a mortgage which makes it increasingly difficult for people to qualify for a mortgage. From increasing test rates, increasing automatic household expenses, more scrutiny around account behaviour and other technical assessment criteria introduced. This mutually affects vendors and purchasers, as well as developers themselves. There is no surprise that a lot of developments are not proceeding as the banks have pulled funding on many developments, to limit their internal exposure to development funding. Therefore, solving the housing problem is not as easy as some parties claim it to be.
One proposed solution is for Loan Value Ratio (LVR) restrictions to be relaxed for first home buyers, if they qualify for a mortgage under normal banking criteria. This will have very little material effect on the property market. First home buyers should be able to borrow up to 90%, and be exempt from LVR and RBNZ rules. Currently, people buying new-build properties are exempt from these rules but I believe first home buyers should be as well. I will certainly put this forward to our local MP as well as through Loan Market Group. It is not fair for first home buyers to fight these restrictions to get on the property ladder, along with the high property prices.
The OCR announcement was a bit of a non-event and was kept at 1.75%. It is expected to remain stable for the foreseeable future.