New year, but more of the same?

Journal, cup of coffee

The new year is almost upon us and with it comes the usual new year’s resolutions which may or may not end up becoming reality. Resolutions aside, the new year brings with it some fresh changes to the RBNZ lending restrictions which in my opinion will have very little impact on the housing market. There’s been plenty of opinions about what these changes mean and social media groups have been jam packed with “experts” giving theirs. So, what will these changes mean and what would I be doing as an investor heading into 2018?

The first change relates to owner occupied buyers. The banks will now be allowed no more than 15% (currently 10%) of their new mortgage lending book to owner occupiers to be at LVR’s of more than 80%. This will effectively double the number of low deposit loans to owner occupied buyers because banks have been self managing their books at about 5% up until now. They’ll likely increase this to 10%, therefore doubling the approvals. 

This is a positive change for first home buyers and will give them a slightly bigger chance of being approved. I say slightly, because whilst the LVR restrictions may be easing, bank credit policy remains tight and will do for some time – in fact I think we will see it getting tighter. I don’t see this LVR change having a significant impact as long as credit policy is tight. Unless some more affordable stock becomes available… Did someone say Jacinda? Average consumers simply can’t get an approval high enough to purchase at current prices. 

The second change is more targeted at investors. The deposit requirement for investors will now be 35% rather than 40%. A positive change that will give new investors more chance to buy and give existing investors access to a bit more equity. Fundamentally though, this will have even less of an effect than the first change. Having a smaller deposit means borrowing more money which, as I’ve said above, is not about to get any easier! This change won’t make a difference to investor behaviour. House prices remain high and regardless of deposit requirements, decent investors will know that in most cases the numbers aren’t there. 

That being said, 2018 will be a year of opportunity for those who are ready to take it. There is going to be some pain over the next couple of years and with that will come opportunity. I’m already seeing examples of amateur speculators being caught with land that they paid too much for and now can’t sell – or they can sell but they simply can’t afford to take the hit on price. There is going to be a lot more of this and unfortunately those smaller time speculators will be the ones to feel the pain. What this means is that there will be some deals to be had for those who are ready. If you can get an approval for more lending, then do that. Then be patient and wait for the numbers to be right.

So, some minor easing by the RBNZ on LVR restrictions will have little to no effect on the market. It may get some people excited but tight bank credit policy will continue to dictate the state of affairs. Money will continue to be hard to get and will probably get harder. Quick profits will be unlikely, so amateur speculators be wary. More so than ever, good advice will be key to your growth.