Strong housing market correction still possible despite change in LVR – Fitch Ratings

According to the international rating agency Fitch Ratings, home prices in New Zealand could still fall, despite the recent easing of LVR restrictions.

Fitch said that the movement of the reserve bank would probably not have a significant impact on the housing market and that some risks remained.

"A sharp correction in the real estate market remains a possibility with still high income-to-income ratios, but that's not our base case and the slowing of price growth has mitigated the risks," Fitch said.

For more property news and announcements go to oneroof.co.nz

Fitch said the LVRs imposed from 2013 had helped calm the real estate market, halving the annual rate of inflation of house prices to 5% nationally and 15% on average in Auckland between 2013 and 2013. and 2016 at 1% in October 2009.

"We expect only modest gains of 3% per annum in 2019-2020." Housing supply remains limited and low interest rates will continue to support demand, but the recent ban imposed to most non-residents who buy a house will act as a brake. " rating agency said.

On Wednesday, the Reserve Bank announced that it would ease LVRs from January, by allowing banks to increase their loans to borrowers with less than 20% deposit, up to 20% of the total. total new mortgage loans, up from 15% previously. currently.

Similarly, the deposits that investors had to relax have been reduced to 30% of the value of a property, against 35% previously.

Although banks are allowed to lend up to 5% of the total new loans to investors with smaller deposits, this level is so low that it is actually impossible to ban them.

The first easing of LVRs by the central bank took place on January 1 of this year.

There is growing concern that the local market is following the decline in Australia, where real estate prices have fallen about 3% nationally, but as much as 5% down on the Melbourne market and more than 7% in Sydney.

Housing prices in New Zealand on this market have historically followed Australia, and economists predict that the slowdown in the trench could expand here in the coming months.

Read more:
• Liam Dann: Will the New Zealand real estate market follow Sydney from a cliff?
• "Unsecured" mortgage changes to make a difference, warns an analyst
• Restrictions on housing loans should be relaxed from January

Until this year, the Auckland market is stalled and evolving laterally, but growth remains strong in the regions.

Mortgage credit analysts were hoping that a relaxation of LVR restrictions would stimulate the market by making it easier for first-time buyers to access a home.

But Fitch is not convinced that it will make a big enough difference.

Even with the second easing, "we still consider them relatively restrictive and we do not expect a significant easing of medium-term loan standards," Fitch said.

"The share of high LVR mortgages in banks' new residential mortgages has increased slightly this year and could increase further in 2019 following the latest easing," the statement said.

"However, high-rate loans are likely to remain much lower than before the introduction of restrictions in October 2013".

Therefore, "we do not anticipate that the changes will have a significant impact on the credit profiles of banks rated by Fitch".

From the beginning of October 2013, ASB Bank was the most exposed to high-rate loans, mainly because of its origins in Auckland, where housing prices are significantly higher than in the rest of the country.

As of June 2013, 73.4% of new SBS mortgages were for clients with deposits of less than 20%.

In the six months ended June of this year – the Reserve Bank removed the requirement for banks to file quarterly returns as of March this year – loans made by ASB to people with less than 20% of deposits had fallen to only 7.5%. new loan.