Proposed changes to the Reserve Bank’s restrictions on high-LVR residential mortgage lending could create opportunities for first home buyers outside the Auckland region. The Reserve Bank has released a consultation paper which proposes a tighter regime for Auckland and a more relaxed approach for other areas of the country. Currently, banks are subject to a ‘speed limit’ on lending whereby only 10% of new lending can have a loan-to-value ratio (LVR) of greater than 80%. The proposal is to increase the limit on high-LVR loans outside Auckland from 10% to 15% of new lending. This is estimated to lead to a 4% increase in the number of house sales and at least a 1% increase in property prices outside Auckland. Meanwhile, other proposed changes would see tighter rules in Auckland for borrowing by property investors.
At the same time, KiwiSaver balances are increasing and many potential first home buyers are finding their combined KiwiSaver funds available as a deposit for a first home, along with first home subsidies, are sufficient to meet bank deposit criteria. More homebuyers will be eligible if the proposed speed limit changes go ahead. As well as the available deposit, banks consider income and credit rating to determine your ability to make repayments within your income and on time. A high level of short term debt on credit and store cards and a poor credit rating can push people outside bank lending criteria. There is a sweet spot now for first home buyers outside Auckland to get themselves into a financial position to meet bank criteria and take advantage of low interest rates and possible changes in the speed limits to purchase before the market heats up.
The Reserve Bank will make a final decision in August, with new rules coming in on 1 October, 2015.