In addition to the reinstatement of loan-to-value ratio (LVR) restrictions next month, property and data analytics company CoreLogic says the Reserve Bank is almost certain to impose controls on interest-only lending to investors as well as put caps on debt to income ratios.
It says New Zealand has only to look at the tighter interest-only restrictions in Australia to realise the significant and lasting impact they have on investors.
The tighter controls are certain to come after rampant demand from investors across the country’s housing market rolled on last month. Investors’ share of overall purchases hovered at a record high of 29%. While first home buyers’ share waned.
CoreLogic senior economist Kelvin Davison says last month’s investor buying numbers will give comfort to the Reserve Bank. Confirming that it was on solid ground reintroducing (LVR) rules, and raising investor deposits back to 40% from May 1.
“The cash investor/multiple property owner figure has remained stable in recent months, at about 12% of purchases. However, some of these may not necessarily be ‘true’ cash buys, as some buyers could have taken on extra debt on other properties in a portfolio.
“But either way, when 12% is added to the mortgaged 29% share of purchases, it demonstrates the weight of investors in the market.”
The buying has mainly been fuelled by smaller players – those that have just made their first investment purchase or those that now own three to four properties in total.
Davidson suspects the “mum and dad” investors are more likely to have been the people most affected by the sharp falls in term deposit rates. Or, in other words, the ones who have had the most incentive to “search for yield” somewhere else.
Things are about to get harder for them, though. Davidson says looking at the Australian experience, the regulator APRA put in place a cap on interest-only lending at 30% of new loans from September 2017 to December 2018. Those loans had previously been running at more than 45%.
As a result, interest-only loans subsequently dropped to less than 20%, even though the cap was removed.
“This could hint at a mindset change amongst investors in Australia and potentially signals where New Zealand might head, given interest-only lending is still about 27% of the total, and more than 40% for investors specifically,” says Davidson.
At the same time, the February figures show first home buyers starting to creak under the pressure of raising ever-larger deposits. Even after their access to KiwiSaver funds is taken into account. At 22%, their share of purchases has eased back down to levels last seen in early 2018.
The first home buyers who do manage to get over the line are paying a lot more. The median price paid in February of $615,000 was 18% higher than a year ago, or $93,700 more.