Reserve Bank delays start of new LVR rules

The Reserve Bank has delayed the start of changes to investor loan-to-value restrictions (LVRs) nationwide from 1 September to 1 October 2016, after talking to the banks about time required to honour pre-approved loans.

“Banks have indicated through their submissions that more time is required to enable them to meet the new restrictions that apply to investor loans nationwide, given the pipeline of loan pre-approvals made prior to our announcement in July,” Deputy Governor, Grant Spencer said today.

Reserve Bank delays start of new LVR rules
“We understand that banks have been applying the new LVR restrictions to new loan applications since the LVR changes were announced. On that basis we will defer the formal introduction of the changes to 1 October in order to accommodate the backlog of pre-approvals.”

Last month the central bank announced plans to introduce new bank conditions requiring most loans to residential property investors to have a minimum 40 per cent deposit.

Most lending to owner occupiers would also require a 20 per cent minimum deposit with both changes rolled out across New Zealand.

Rules requiring Auckland investors to hold a minimum 30 per cent deposit, and Auckland residential buyers to hold 20 per cent, are already in place.

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Auckland home values head south

by NZ Adviser 10th Feb 2016

The last month has seen home values fall in parts of Auckland and the three monthly and annual rates of growth slow down significantly compared to over the last year, the latest monthly QV House Price Index show.

Nationwide, residential property values for January have decreased by 0.3% over the past month, which is the result of a 0.5% decrease in the Auckland region in the month since December 2015.

However, over the past year nationwide values have risen 12.6% and 0.7% over the past three months. They are now 34.2% above the previous market peak of late 2007. The average value nationwide is now $556,206. The average value in the Auckland region is now $928,921.

“The QV House Price Index shows home values continue to rise in outer fringe Auckland areas of Rodney, Papakura and Franklin, as well as in most other parts of the New Zealand,” QV National Spokesperson Andrea Rush said.

“However, for the first time in more than a year values have decreased over the past month in the former Auckland City Council suburbs as well as on the North Shore, in Manukau and Waitakere.

“The value decreases in parts of Auckland could be in part due to the seasonal impact of the holiday period and the housing market may pick up in the usually busiest months of the year, February and March.

But Rush says it’s more likely a continuation of the softening in the market seen after the government and the Reserve Bank introduced new rules to slow down investor activity in Auckland.

“It’s possible the easing in values in Auckland may be short-lived as the under lying factors driving house prices up remain: record high net migration, record low interest rates and a lack of housing supply.”

“The previous two months had already shown a marked slowdown from the increases we have become used to seeing in Auckland,” says CoreLogic NZ Director of Research Jonno Ingerson said in a report .

“This is therefore not a one-month anomaly, which we do see from time to time. This is a genuine drop in values.

“Back in 2011 we saw a couple of months when Auckland values dropped slightly, but values at that time were almost flat so a drop wasn’t as notable. You have to go back to the beginning of the Global Financial Crises in early 2008 to see this sort of turnaround in Auckland values.”

QV Homevalue Registered Valuer, James Wilson said the lifestyle market is still getting stronger, as buyers seek lifestyle property further from the city centre to get more for their money.

“QVhomevalue Auckland is seeing an increase in people re-financing against their homes or property portfolios to purchase additional property, complete capital upgrades or free up cash for personal use,” Wilson says.

What the Reserve Bank said to start the year

The Reserve Bank today left the Official Cash Rate unchanged at 2.5 percent.

Thursday, January 28th 2016, 9:00AM

Uncertainty about the strength of the global economy has increased due to weaker growth in the developing world and concerns about China and other emerging markets. Prices for a range of commodities, particularly oil, remain weak. Financial market volatility has increased, and global inflation remains low.

The domestic economy softened during the first half of 2015 driven by the lower terms of trade. However, growth is expected to increase in 2016 as a result of continued strong net immigration, tourism, a solid pipeline of construction activity, and the lift in business and consumer confidence.

In recent weeks there has been some easing in financial conditions, as the New Zealand dollar exchange rate and market interest rates have declined. A further depreciation in the exchange rate is appropriate given the ongoing weakness in export prices.

House price inflation in Auckland remains a financial stability risk. There are signs that the rate of increase may be moderating, but it is too early to tell. House price pressures have been building in some other regions.

There are many risks around the outlook. These relate to the prospects for global growth, particularly around China, global financial market conditions, dairy prices, net immigration, and pressures in the housing market.

Headline CPI inflation remains low, mainly due to falling fuel prices. However, annual core inflation, which excludes temporary price movements, is consistent with the target range at 1.6 percent. Inflation expectations remain stable.

Headline inflation is expected to increase over 2016, but take longer to reach the target range than previously expected. Monetary policy will continue to be accommodative. Some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.

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Mortgage rates set to tumble again?

Fixed rate mortgages could be set to tumble to new lows in the coming months after the Reserve Bank signaled it may have to cut the official cash rate again this year.

The Reserve Bank kept the rate at 2.5 per cent this morning but in a statement said “some further policy easing may be required over the coming year” to get inflation within its target.

The statement is a shift from the end of last year when the bank indicated it would prefer to keep the rate on hold.

Dominick Stephens, an economist at Westpac, said fixed mortgage rates were influenced by the financial markets and prices had indicated fixed rates would stay the same.

“But markets are now accepting there really is a good chance of cuts.”

Stephens said the one issue that could throw a spanner in the works was the volatility in global sharemarkets seen since the start of the year.

When sharemarkets were more unstable overseas lenders tended to charge New Zealand banks a greater premium to borrow money as New Zealand was seen as a riskier bet than other countries.

“The market turmoil might keep the upward pressure on.”

But Stephens said in his opinion a cut by the Reserve Bank would have more influence on the rates.

Overall I would expect fixed mortgage rates to fall.

Dominick Stephens

Banks typically cut their fixed mortgage rates ahead of the Reserve Bank cutting its rate meaning changes could be on the cards in the coming weeks.

The next official cash rate announcement is due on March 10.

Stephens said markets had shifted to price in a 50 per cent chance of an official cash rate cut in March but there was some indecision over whether it could be March or June.

Home-owners were able to grab a sub-4 per cent rate last year with SBS Bank offering 3.99 per cent but that special has since ended.

Last week TSB bank announced it was offering 4.29 per cent over two years – the lowest rate currently available, according to interest.co.nz.

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