mortgage aucklandThe final quarter of 2016 represents a turning point for residential property owners because a handful of economic factors have come together at the same time. So, what’s happened and (more importantly) what does it mean for you when it comes to getting a mortgage in Auckland?
LVR restrictions firm
Pressure has been building since October 2013 when LVR (Loan to Value Ratio) restrictions came into play. This limited the volume of loans that banks could do for those of us with small deposits. 20% became the new benchmark and remains a key threshold today.
Those restrictions were further tightened in 2015. It meant that rental property buyers in Auckland needed a 30% deposit – and then that was lifted to 40% deposit right across the country.

That was a reasonable end-position to get to (and could have even been hardened to 50%) because, in my view, enthusiastic investment activity seems to have been the primary culprit as far as rampant house prices were concerned.
It also meant that first home buyers would have a chance to catch up without crushing the equity of existing property owners. It got pretty hard seeing client after client getting smashed by investors who simply had more financial horsepower in the auction room. (I talked about exactly that in an earlier blog.)
Important exemptions have been in place since then for low deposit borrowers and that’s an area of the market where Go2Guys have always specialised. It’s tough playing in this space – but so are we!
Responsible lending required
The responsible lending code really kicked in during 2015. This was specifically designed to force lenders to take extra steps to ensure that their loans were affordable (and suitable) for any given borrower. The code is a good thing but it has also meant that some loan applications which would have previously made the grade no longer do.
Overseas income limited
Another brake was applied to lending for overseas based borrowers around May 2016. While mostly targeted at non-NZ residents, it has captured a few expat Kiwis as well. It’s ended up removing a chunk of overseas investors from auctions rooms, as banks remain less willing to include overseas income when testing affordability.

Bank capital toughens up

The final important brake has just started to bite and, while it’s attracted far less press than the LVR restrictions, it’s effect will be profound. Banks are required to hold onto more capital for every dollar of loan they make. If you recall Economics 101 you’ll recognise this as a classic supply problem which means it’ll not only be harder to get a loan, but it’ll be more expensive too.
Interest rates bottom out
Yes, interest rates seem to have bottomed out. I know we said the same thing in 2014 when they hit the 6% range only to keep falling to where they are now. Things do seem a bit different now though.
In particular, the effect of banks having to hold more capital means their profit margins will get squeezed (fewer loans means less profit), so the only way to offset that is to charge more for every loan. Interest rates will go up – and in recent weeks that’s exactly what has happened.
Other writers have talked at length about how banks have had to hold term deposit rates up to attract local money (which banks then on-lend). There’s always been a shortfall between what banks can scrape in locally and what Kiwis want to borrow, so they fill that gap by going to overseas funders and the cost of that funding has gone up in the last 6 months.
Our predictions on what’s going to happen with interest rates
We’re not predicting a huge increase in interest rates but there’s pretty clear evidence for rates to come off their current lows given the pressures I’ve just described. I see them wobbling around 5% for a few years with no return to 9% on the horizon. That’s no excuse for complacency though, and we’ve got it wrong before. Still, that doesn’t seem unreasonable to me.
It’s made for a bumpy ride in this office with change after change – after change.
So, what’s going to happen next? Check out where we think things are heading – and what it means for you.
If you want some more informed advice, give me a call.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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