House prices are still expected to rise even with lending restrictions. Photo / file
Increased restrictions on lending to investors won't do much to take the steam out of the roaring housing market, experts say.
The Reserve Bank this morning announced that most investors will need a 30 per cent deposit from March and 40 per cent by May but that banks should respect the 40 per cent requirement immediately for all new investor lending.
The 30 per cent restriction was well-signalled and while an announcement on the 40 per cent restriction was not expected today, most of the banks had already moved to this requirement.
ANZ was the first to do so back in December but last week BNZ, Kiwibank and ASB also joined it in requiring investors to have a 40 per cent deposit or equity.
Bruce Patten, a mortgage broker with Loan Market, said only Westpac and some of the smaller banks had yet to clamp down on investor lending.
"I reckon the banks thought 'gee we will get in first because otherwise what happens is they just get hammered by people applying for funding trying to beat the change'."
Patten said it hadn't slowed anything down even with last week's announcement from ASB, BNZ and Kiwibank.
"The enquiry levels are just through the roof."
When contacted by the Herald today, Westpac said it will require a 40 per cent deposit for investor home loans effective immediately.
"We welcome the Reserve Bank's moves announced today. We were already moving to put our own restrictions in place due to high investor demand," Westpac NZ general manager of consumer banking and wealth, Gina Dellabarca, said.
"We have taken a consistent and responsible approach to lending over the past 12 months, and continue to support New Zealanders to achieve their home ownership aspirations. We encourage people to talk to us to understand what these changes might mean for them and how we can help."
Pattern said only those who have bought property in the past year would feel the impact from the investor rule change as they had only seen their property rise by 15 per cent in value.
"There are a lot of people out there with equity and it is certainly equity greater than 40 per cent across their properties. I think it is going to have an impact. I don't think that it is going to be substantial because there is just a lack of property and people have nothing else to do with their money at the moment.
"They are not spending it on big trips away, they are stuck in the country and they see property as a safe haven for putting their funds."
He said it might take a few percentage points off the growth in house prices.
"It is only a single factor in the scheme of things."
He said it needed to be much cheaper and easier to subdivide to help boost supply.
Sharon Cullwick, NZ Property Investors Federation executive officer, said she was concerned about a double-whammy effect and how people desperately saving to buy their first home would be hit just as much as people who were already landlords or planning to become landlords.
"It's not just investors but also first-home buyers because many of them have low deposits and soon they might require a much higher deposit," she said.
Cullwick said she had no doubt demand for properties would decrease when the new rules come in.
"It will make it much harder. It'll slow the market down. But there are many first-time investors seeking feedback on buying and I've noticed more of them lately," she said referring to social media.
But a spokeswoman for ANZ said it was a good move by the Reserve Bank, which it hoped would bring balance to the housing market.
"We're concerned that escalating property prices are putting home ownership out of reach for many Kiwis, particularly first-home buyers.
"It's in everyone's interests for residential property prices to be sustainable long term, and for home ownership to be accessible to as many people as possible."
A Kiwibank spokeswoman confirmed it started requiring a 40 per cent deposit on new home loan applications from property investors on Wednesday last week.
"This was to manage the current demand in the housing market while continuing to support Kiwis to realise their home ownership dreams."
Kiwibank chief economist Jarrod Kerr said investor demand had surged in recent months.
"We expect the excessive run in property prices to cool, a little, as the LVR restrictions take hold, just as they did when first introduced from 2013.
"But demand is not the problem, in our opinion, it's the chronic shortage of affordable dwellings that is keeping many from climbing the property ladder. And of course, inequality is worsening as a result. We're hopeful the Government will enact meaningful reform to boost supply of affordable homes for everyday Kiwis."
A BNZ spokesman confirmed it had increased the investor requirement to 40 per cent on Tuesday last week but that was only though its broker channel.
Westpac chief economist Dominick Stephens said the increase to 40 per cent was not a complete surprise.
"We were expecting a tightening at some point - obviously we didn't think it was going to come out today."
"They are moving reasonably rapidly on this, it is showing quite a willingness to move on the changing reality in the housing market."
But Stephens said it would only have a modest effect on house price growth.
"It will perhaps help take some of the froth off. And in my view there is very considerable froth. We have been forecasting for some time a really big upswing in the housing market due to very low interest rates. I think there is a lot further to go."
He said the past decade had shown that restricting investors had tended to have the most impact.
"But it is only going to take a little bit of that upside out of the market. I still think we are in for very rapid house price increases in the immediate future."
Stephens believed the only thing that would reverse house prices would be an increase in interest rates.
"But I don't think that is going to happen. The Reserve Bank is going to set interest rates as appropriate for inflation rather than for the housing market so interest rates are going to stay low for some time."
Stephens said the emphasis had always been on the supply versus demand issue.
"I think this year has been an illustration of how that theme has been wildly overemphasised by the public sector.
"What we are seeing is construction activity is extremely strong, population growth has plunged. Shortages are being eroded. But, if anything, supply versus demand should have meant slower house price growth this year and it hasn't, it really illustrates the importance of interest rates and what has really driven house prices and the limit that physical supply and demand really has."
Jeff Walters of K3Law, which carries out extensive conveyancing work, said some would-be or existing landlords would find it much harder to get bank finance under the new LVR regime.
But overall, he doubts the limits will have any enduring effect.
"Taking bidders out of the market can only help home buyers and in particular first-home buyers," he said.
But the housing market has a complicated supply and demand problem, created by planning issues, infrastructure issues, tax issues and other factors, Walters said.
From March 1, 2021:
• LVR restrictions for owner-occupiers will be reinstated to a maximum of 20 per cent of new lending at LVRs above 80 per cent.
• LVR restrictions for investors will be reinstated to a maximum of 5 per cent of new lending at LVRs above 70 per cent.
From May 1, 2021:
• LVR restrictions for owner-occupiers will remain at a maximum of 20 per cent of new lending at LVRs above 80 per cent.
• LVR restrictions for investors will be further raised to a maximum of 5 per cent of new lending at LVRs above 60 Per cent.
Nearly 90% of new mortgage lending in October was floating or fixed for a year or less.