Is Confidence Returning?
Peter Norris says the market outlook is positive despite tight bank credit policy.
28 February 2018
When the loan-tovalue ratio (LVR) restrictions came into play in 2013 they had a reasonable impact on the housing market and borrowers in general. However, whilst the market slowed for a few months, buyers soon found ways around the rules and the craziness continued. It wasn’t really until the changes in late 2016 – which removed the use of overseas income and increased investor deposits to 40% – that we started to see a turn.
As a result, 2017 was a significantly slower year in certain parts. Maybe not across the country or even Auckland in its entirety, but certainly in parts. John Bolton’s article late last year, Welcome to Auckland’s Growth Party, covered this off in respect of GDP but it was also very much the case for the housing market.
Confidence fell out of the market last year and whilst some areas didn’t feel the impact, others such as South Auckland certainly did. That confidence appears to be coming back this year off the back of the Reserve Bank (RBNZ) easing the restrictions on LVRs, and possibly people’s New Year’s resolutions coming to fruition! The RBNZ has indicated that this easing will continue, so with that I’d expect to see the market remain strong. I don’t think house prices will continue to climb as we’ve seen in recent years, but I absolutely think they will hold strong.
“We’ve started the year with significantly more enquiry than we were seeing in the last six months”
Vendor expectation has come back a bit and buyers are starting to find properties within their budget. And they’re finding them quickly. We’ve started the year with significantly more enquiry than we were seeing in the last six months of 2017, and more than that, the enquiries are from people who either already have a property under contract or have one that they want to put an offer on.
Despite this increased confidence and activity, bank credit policy continues to play its part. Borrowing is the most difficult I have seen! The responsible lending code – and banks’ interpretation of that – is by far the hardest to get around. Test rates remain high, meaning maximum borrowing is sitting at somewhere between five and six times income, whilst property values are up around nine times in Auckland and six times outside of Auckland. Even the non-banks aren’t so straight forward anymore.
Individual credit policies continue to differ widely across banks so I’d be making sure that split banking is part of your investment strategy. In this market, having everything with one bank is madness and the more properties you have the more banking relationships you should have. The biggest problems for investors I’m seeing at the moment are where they are selling property and they’re with one bank across their whole portfolio.
In saying that, a recent article by ANZ suggested the bank funding gaps are closing, which has ultimately been the goal of the banks’ restricted lending criteria. Banks are required to be more self-funded rather than borrowing offshore. It went on to suggest that this could result in a more competitive lending environment. I’m not yet seeing this but it’s still early days so fingers crossed. Couple this with the increased activity and we could be in for a bumper 2018!