Following talk of another boom in Auckland house prices, one of the Reserve Bank’s (RBNZ) deputy governors recently made a comment about restricting bank lending on low deposit mortgages — so rather than getting in with just 5% deposit you’d need more like 20%.

This would have a huge impact on first home buyers who make up most of the low deposit borrowers. They would be faced with saving a minimum deposit of $60,000 to $100,000 thereby delaying purchase of a house by several years.

But it seems totally ridiculous to even be talking of such restrictions in the current market.

If the RBNZ wants to restrict the amount of lending being done right now then the answer is simple – put interest rates up. They have that tool at their disposal right now and with rates at 40 year lows there is ample scope to clamp down if they really wanted to.

The reality is the RBNZ should be encouraging more lending as the number of homes available in Auckland is well below what is necessary to sustain the city’s population growth. A few more need to be built (understatement of the week). And we all know the situation in Christchurch – if anyone needs new housing it’s the good folk of the Garden City!

We think any restriction on lending would seem to be ‘crazy talk’, at the moment anyway.

And even if they did introduce such measures, borrowers would find a way around them by using 2nd mortgages, as our parents did prior to the 1980s.

 

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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