Nick Gentle, of iFind Property, says insurance and council rates are becoming more expensive as infrastructure pressures combine with cost increases. There is pressure on many councils to cut back to core services. Inflation is still high even if it is coming down and easing month-on-month.

Ditto for interest rates, which are still high, even if the consensus among economists is they have probably peaked.

The financial markets have been pricing in an easing of the OCR and interest rates in the first half of this year, but Westpac senior economist Satish Ranchhod says this seems premature. 

“RBNZ chief economist Paul Conway noted that while inflation has eased and monetary policy is working, domestic inflation remains elevated and there is still a way to go to get inflation back to the target midpoint. Any easing in the OCR is still some way off,” Ranchhod says.

The Reserve Bank’s monetary policy committee will make its next policy decision on February 28 and is widely expected to hold the OCR at 5.50 per cent.

Gentle says another hurdle being debated is the probable impact of the RBNZ’s mid-year plans to implement debt-to-income (DTI) restrictions to curb future bubbles in the housing market. At the same time the central bank still wants to see a recession and unemployment rise about the existing four per cent.

The RBNZ proposes initially setting the DTI policy to allow banks to lend:

• 20 per cent of their residential loans to owner-occupiers with a DTI greater than 6; and
• 20 per cent of their residential loans to investors with a DTI greater than 7.

It is proposing easing the LVR settings at the same time as activating DTIs to allow:

• 20 per cent of owner-occupier lending to borrowers with an LVR greater than 80 per cent; and
• 5 per cent of investor lending to borrowers with an LVR greater than 70 per cent.

RBNZ deputy governor Christian Hawkesby says introducing DTI restrictions will allow the bank to loosen LVR settings without increasing risks to financial stability. “Working together, these tools enable us to more efficiently target financial stability risks.”

He says the financial stability risks of “boom and bust” credit cycles are significant, so it’s important to ensure the bank has appropriate policies in place to manage them. 

Investor talk

His conversations with investors include consulting their mortgage broker about buying power and how that might be impacted by the DTI restrictions. “Some will need to make their next purchase before mid-year.”

He says investors’ focus seems to be back on getting cashflow for their area, adding value where they can and income needed to support investment.

“Increases in rental pressure are obvious in most markets, with the notable exception of a couple of student zones (university enrolment numbers have softened).

“A lot of people are investing for the first time and conversations tend to be about how to buy with momentum that helps to build a portfolio over time.”