Getting a mortgage will soon become easier

The Reserve Bank said the risks weighing on the New Zealand financial system have been mitigated over the last six months and that it was time to reduce the restrictions on mortgages.

Value-Based Loan Restrictions (LVRs), defined by the Reserve Bank, determine the proportion of new loans that can go to people with small deposits.

As of January 1, up to 20% of new loans will be granted to owner-occupying borrowers with equity of less than 20%.

Currently, only 15% of new loans can be granted to this group. Before the introduction of the rules, in 2013, loans to low-deposit borrowers accounted for about 30% of banking activities.

Up to 5% of new loans will be granted to investors whose deposits are less than 30%. Currently, the threshold is 35%.

READ MORE:
* Here's why you should (or maybe should not) buy a house
* Rents rise 50pc in some areas of New Zealand
* Owners: How hard are they, really?

Reserve Bank Governor Adrian Orr said households are still exposed to financial shocks because of the heavy burden of their mortgage debt.

"However, as both mortgage credit growth and home price inflation have been brought back to more sustainable rates, which has reduced the risks associated with new home loans for banks, we will be easing the restrictions. provided by the LVR to the new bank mortgages, we expect to further reduce LVR restrictions in the coming years, "he said.

These rules have been blamed on the Auckland property market, particularly with respect to investor activity.

Nick Tuffley, chief economist at ASB, said that decision was more ambitious than he had predicted.

This would further stimulate the market at a time when it was already supported by low interest rates, he said, and which had shown signs of a late spring rebound.

"This should strengthen the business."

Gareth Kiernan, an infomercial economist, said investor relaxation was a surprise. At 30%, it is the same level of deposit as that required of investors in 2015, while the rules had only a small impact on investor activity.

But he added that the central bank could assume that it could now proceed to a downward adjustment safely, without reviving the market, since the "speculative heat" had been neutralized in recent years.

The rules were introduced for the first time in 2013 and have been amended several times since.

Bindi Norwell, General Manager of Real Estate Institute (REINZ), welcomed the change.

"The fact that banks have the opportunity to increase the percentage of new loans from 15% to 20% of their total loan portfolio means that it is possible that more first-time buyers will have access to loans." that they had not had before.

"Real estate agents across the country are constantly telling us that median prices are reaching record levels in the regions." First time buyers simply have too much trouble buying this first deposit and entering the real estate market. Any opportunity offered to young couples to position themselves in the real estate market is to be welcomed, "she said.

"We also welcome the announcement of the easing of solvency levels for investors from 35% to 30%." Due to the legislative package currently facing investors, many have announced their intention to withdraw from the market.The announcement today could help support the continued supply of rental properties in New Zealand ".

Kelvin Davidson, Principal Research Analyst at CoreLogic, said the decision could boost sales volumes, but that was not guaranteed.

"Despite the loosening of LVR limits by the Reserve Bank, an increase in loans is not a net result.After all, lenders can choose to remain cautious, especially since the report on the financial stability released today also underscores the RBNZ's view that conditions are needed for the banking system to be resilient enough while remaining effective. " In other words, a future requirement for banks to have higher capital reserves would tend to dampen loan flows. "

BEST MORTGAGE PRICES?

At present, banks offer their "special" interest rates to people with a capital of 20% and more. They have fallen below 4% in recent weeks.

Buyers without 20% do not only benefit from promotions but also pay low margins and capital premiums in addition to standard rates.

Broker Bruce Patten said this month that a person with 20% equity could get a rate of about 4%, but that a borrower with a 10% deposit could pay around 5.5%.

Claire Matthews, a banking expert at Massey University, said it was possible for banks to start extending their special offers to people with less equity.

Competition in the mortgage market has shown that they want to lend, she said.

"They will be able to make more loans to these people and may be willing to encourage them more than before." On the other hand, people with small deposits are more risky and it is It's logical that they be charged at a higher rate – it depends on their willingness to lend in. If we move, they will probably do it because they can not afford not to do it. "