I like Peter Thompson of Barfoot and Thompson fame.

This week he was quoted by NZ Herald and Radio NZ as saying that first home buyers should be exempt from the requirement to have a 20% deposit, provided the purchase price is under $600,000.

I like that sentiment, but Christ only knows why he picked a price threshold, especially one at only $600,000. There are plenty of houses under that threshold in my hometown of Opotiki but in Auckland that’s about as useful as using a handee towel to mop up nuclear waste. Welcome Home Loans are as rare as Maui’s Dolphin in Auckland, for the same reason.

Still, I like the sentiment. And if there was ever time to put pressure on the Government to change RBNZ policy on lending restrictions, then it’s now. I don’t want to say the words ‘housing crisis’ but people are definitely a bit jumpy about the issue, and when you combine that with an election year why wouldn’t you turn up the heat?

The truth is that the RBNZ restrictions have had the desired effect and nailed the most problematic part of the market – investors. With a 40% deposit required for a rental from September 2016, property owners actually ran out of steam (equity which they could borrow against quickly), and sales volumes reflected that almost immediately.

The LVR restrictions are not the only handbrake on mortgage lending, but basically it has all added up to the sales volume (of houses) dropping by about a third. It means prices won’t really go anywhere for a while. Which is nice for first home buyers, you’ve got a window.

Will it stay this way? A strong economy, low interest rates and heaps of immigrants suggests demand for houses will exceed supply of houses, and that usually means prices go up. Against that, mortgages are big these days and wage growth looks slim, so if interest rates go up most households will notice it. I reckon you’ll have a situation where people really want to buy but are quite cautious about taking action. It probably explains why we’ve got a few mortgage approvals that have been sitting there for a while, unused.

My personal view is that the RBNZ should ramp up the deposit requirement on rentals to 50%, but at the same time they should throw the gate wide open to first home buyers with a small deposit. Don’t worry about Peter’s $600,000 threshold either, go the whole hog!

Under those conditions price stability probably won’t be stuffed up too much and you could get a better balance overall. Owners of multiple properties (like me) might not be able to buy another one anytime soon, but you’re giving the first timer a chance without buggering the equity I’ve got. That seems like a reasonable compromise to me.

What do you think?

 

If you’re on the verge of first home buying and want some expert help in making that purchase, get in touch
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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