Lightbulb moments and glimmers of hope for home buyers

Lightbulb moments and glimmers of hope for home buyers next week (1 January)

A mortgage advisor says the loosening of restrictions on home loans by the Reserve Bank next week (1 January) will be a lightbulb moment for some, and just a glimmer of hope for others.

The central bank has had loan-to-valuation ratio (LVR) restrictions in place since 2013 to address financial stability risks arising from rapid house price inflation and increasing household debt.

From 1 January, banks will be able to allocate up to 15 percent of their new mortgage lending to people buying houses with deposits of 20 percent or less. Currently only 10 percent of banks’ new lending can go to this group.

Also from next week, banks will be allowed to lend more to residential property investors. New lending will be allowed for investors with deposits of 35 percent or more. The current restriction is 40 percent or more.

Tony Mounce, of Tony Mounce Mortgages and Insurance, says since the restrictions were enforced by the Reserve Bank, the team has seen loan applications from investors turned down because they have failed to meet the deposit requirements by “just a few percent”.

“We believe the changes next week will see these budding investors doing their numbers again and realising they now have a genuine opportunity to get into the rental market. This will be a real lightbulb moment for them.”

However, Tony Mounce says next week’s changes will be a mixed bag for people wanting a mortgage to get into their first home.

“If you’re in Auckland, next week’s changes will have some impact, but they won’t be as much of a late Christmas present as they’ll be for people in areas outside Auckland, for example, where average house prices are lower.

“If you take Christchurch, average house prices are about half what they are in Auckland, so it’s natural that the people borrowing less will benefit the most.

“It’s in places such as Christchurch and Dunedin, and some other regional areas, where the impact of next week’s changes will be significant. Elsewhere, particularly in Auckland, they’ll provide a glimmer of hope but that’s about it.”

Tony Mounce says while next week’s changes will create opportunities for some people, he doesn’t see them leading to any dramatic increases in house prices.

“In the big picture, these changes are a small tweak and I’m confident the loosening of the restrictions next week won’t set the housing market on fire.”

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