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Mortgage broker says RBNZ crackdown on bank's low equity mortgages won't work and Labour's foreign buyer ban a red herring

Posted in Property
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By Gareth Vaughan

The Reserve Bank introducing restrictions on banks' low equity home loans won't bring Auckland house prices down, a central city mortgage broker says.

John Bolton, principal of Squirrel Mortgage Brokers which operates in central Auckland, told in a Double Shot Interview the use of loan-to-value (LVR) restrictions by the Reserve Bank's as a temporary measure to slow bank lending where the borrower has a deposit of less than 20%, would be a case of applying a rule but not solving a problem.

"Fundamentally it (LVR restrictions) is probably not going to work," Bolton said. "Ultimately the issue we've got is house prices increasing. It's not necessarily a high growth rate in terms of overall mortgage volumes. (So) we're applying a rule but we're not really solving a problem."

Opportunity for second tier lenders

He suggested the policy could create an opening for second tier lenders like Liberty Financial and Resimac, who both raise money via securitisation in Australia. Such a market hadn't existed in New Zealand for a long time because banks had been very competitive in the above 80% LVR loan space.

"There really hasn't been the margin or the profitability there for those guys to be in this market. I think the more the market tightens up in that space, the more opportunity we're creating for securitisation type vehicles and second tier lenders," said Bolton.

"That's not necessarily a bad thing and it's not necessarily a bad thing that we're getting more accurate pricing of the risk above 80%."

"I think what you will see is new lenders coming into the market, parents that can afford to basically providing deposits for their kids, and you will continue to see capital coming in from offshore," Bolton said.

"So I'm not sure that you're going to see much change at all. And certainly you're not going to see that translate into where the problem is which is trying to take control of Auckland house prices."

The latest monthly Real Estate Institute of New Zealand figures show July sales volumes up 450, or 20%, to 2,756 year-on-year, and the median price down $3,000 to $552,000. The Reserve Bank this week released further detail on its LVR "speed limits" policy after consultation. LVR restrictions are one of four so-called macro-prudential tools the Reserve Bank says it could use, temporarily, to help avoid extremes in credit and asset price cycles.

First home buyers 'disheartened'

Bolton said first home buyers, or would-be first home buyers, were generally disheartened.

"There's nothing worse than turning up to auction after auction and finding the price goes to a crazy level. It (the market) is still strong and it's still essentially driven by a lack of supplies," said Bolton.

Asked for examples of first home buyers who've gone through the mill, Bolton said all of them were going through it.

"It would be unusual for one of our clients to go out and find the house first time. The number of (bank loan) pre-approvals that expire and then have to be renewed is really high. I'd suggest that probably at least 50% to 60% of our first home buyers will go a full six months and have to get them renewed before they're potentially buying," said Bolton.

On the weekend Prime Minister John Key said the Government would relax terms for first home buyers using KiwiSaver deposits from October 1, but will require 10% deposits on homes and he stopped short of increasing the subsidy available for first time buyers using KiwiSaver from the existing $5,000.

Labour's proposed foreign buyer ban - 'NZ residents are doing most of the buying'

Late last month Labour leader David Shearer said a Labour-led government would crack down on non-residents buying existing homes as part of a package designed to make housing more affordable for New Zealanders. Non-residents, apart from Australians, would only be allowed to buy houses off the plan or sections that a house was going to be built on.

Bolton said although there were anecdotal examples of people overseas "charging into New Zealand buying up properties and then disappearing," this issue was largely a red herring from what he's seeing.

"Fundamentally the bigger issue, I think, is just how much capital is floating around. A lot of that money is coming from overseas, but it's actually going into the hands of New Zealand residents. And I think it's actually New Zealand residents that are doing most of that buying," Bolton said.

"It doesn't matter where you come from in New Zealand parents generally play a role in (house) purchasing. I've got plenty of clients who have bought a property and mum and dad have chipped in $50,000 or $100,000. It just so happens that we've got a lot of young people in New Zealand now that can potentially access quite large amounts of money from overseas from their parents, and that's putting them into a position where they can buy potentially multiple properties."

"It's not uncommon amongst some of our clients for that to occur," Bolton added.

Cloud based property management system with bank feeds

Meanwhile, Bolton has launched an online cloud based property management system with bank feeds named TenanSee that will manage up to 50 properties for a $30 monthly fee.

So far ANZ and ASB have signed up, with work being done to bring Westpac, BNZ and Kiwibank on board.

"The interesting thing from my perspective is what you can build with a couple of really good IT guys. We've had three IT guys working on it for six months, up on the cloud with not a huge amount of money. To date we've probably invested about $250,000 in it," said Bolton.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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"The interesting thing from

"The interesting thing from my perspective is what you can build with a couple of really good IT guys. We've had three IT guys working on it for six months, up on the cloud with not a huge amount of money. To date we've probably invested about $250,000 in it," said Bolton.
Bookies do well. 

It would seem of no use to

It would seem of no use to your accountant, they will need put it all into MYOB or better Xero any way ... And in terms of the bank, the accountant is the holder of the truth... and there seems to be no tax...  the management bit is in name only...

and... time check

time check please:9:10pm... we find:

TenanSee™ is down for maintenance.
We apologise for any inconvenience - please try again shortly.
not good, given this is cloud, and all numbers are up there some where........
software made by someone who is not a software maker......

Bolton: says "It so happens

Bolton: says "It so happens that we've now got a lot of young people in New Zealand that can access large amounts of money from their parents overseas, and that puts them in a position where they can potentially buy multiple properties"

Someone will get pi$$ed off

Someone will get pi$$ed off with me wading into this debate .... again
John Bolton ....Thank you for this , you are basically confirming the RBNZ is trying to treat the symptoms while doing nothing about the causes of the price movements.
And my view is that the RBNZ is actually powerless to stop these increases .
This is a supply side problem fueled by cheap borrwing costs
Auckland house ( ASSET ) prices are now doing the same as all asset classes have been doing for some months now, that goes for commodities (such as  milk)  , shares , bonds  ,debentures , derivatives (futures)   and commercial property
Govt , Labour , and RBNZ are all behind the 8 ball , as all asset prices worldwide are now increasing , stock markets, commodity  and bond markets everywhere are at record levels.  
I would suggest that there is still a long way for Auckland house prices to run in this market yet ,
It should be noted that house prices increases of 12 % this year , on coming out of a recession off a low base is not as bad as it seems .
Its all been helped by extremely low borrowing costs and the banks being awash with money to lend
Both Perth and Sydney have seen bigger increases in dollar terms  .
The NXZ  50 INDEX  has gone from 3609  to 4680 which is around 30 % increase and no one bats an eyelid .

In 2009 it was negative 10%,

In 2009 it was negative 10%, and then buggerall increaments for 3 years after. That makes a redundant 4 years. 12% increments over 4 years is not a bubble but a recovery but of course this simple fact escapes most economists.

And 2002-2007 was the most

And 2002-2007 was the most freakish period of house price rises in the history of the data I was matching the other night (which went back to ’79, I would still be keen to extend it further) so I don't know that treating 2008 as a starting year is a good idea.
That said, I also think prices could rise massively- before 2002 local demand explained 90% of price fluctuations, since 2007 local demand explains nothing in house price fluctuations- it is all off shore capital causing the rises and falls- the local market is ticking along at what they can afford at a steady rate, but what they can afford is essentially a flat line. Since it is offshore capital setting the price coming in over the top, prices could do anything.

dh, the Auckland property

dh, the Auckland property cycle is usually a 7 to 10 year cycle. Therefore the bottom end of a cycle ie 2009 is usually a good starting point building towards a bull cycle. For your 2002-2007 bull, you would have to go back towards the last bottom end to get your start point otherwise you would be chasing your own tail without a start point.

The RBNZ is doing the right

The RBNZ is doing the right thing. It is telling the banks to keep their lending sensible. Housing affordability is not within the RBNZ mandate. Their concern is that house price increases do not spill over into inflation. But since inflation is still dead in the water, the RBNZ will not act to reduce house prices.

Semantics?  So these supposed

Semantics?  So these supposed NZ residents who have parents/ relations (presumably non-resident) who are using their wealth to buy multiple properties. What are the taxation implications of this? The IRD could and should investigate the source and movement of the capital used to buy property.

Be interested to know how you

Be interested to know how you would suggest that be done ..

No idea, icon. It just seems

No idea, icon.
It just seems that we allow ourselves to be screwed by these outsiders.
However if other means can be exercised to make real estate harder for investors in general, this type of investor would head for the exit. Bonus is cheaper homes for locals.
All it needs is a nudge and  its horse and cart stuff.
It's just which one is pushing.

Screwed by outsiders? Seems

Screwed by outsiders? Seems like it is the ones selling that usually are the ones making the huge profits and not necessarily the ones buying. Who knows, maybe it is the outsiders who have been conned into paying way too much for Auckland properties. Many of them have bought and paid huge prices for worthless leasehold properties, worthless leaky properties and crappy draughty run down old properties and pidgeon hole apartments big enough for a dogs kennel.

Great. Bring it on.

Great. Bring it on.

It sure is refreshing viewing

It sure is refreshing viewing an informed property commentator such as John Bolton of Squirrel Mortgage Brokers on these important issues. And an excellent interview by Gareth Vaughan.
As John makes clear, THE problem is a lack of affordable new residential stock. Do your own calculations of the “consenting rates per 1000 population per annum” in your area from the Building Consents Issued - Statistics New Zealand Tables .
The performances of our major metros is woeful, simply because of “institutional failure at Local Government level, as I explained recently within Suffocating Bureucracy & Failed Institutions . And too, back November last within How Housing Bubbles Are Triggered . What needs to happen is set out within Section 4 of Christchurch: The Way Forward .

Christchurch and Auckland are now at severely unaffordable 7.0 Median Multiples ( refer Demographia Housing Survey ).
Normal housing markets do not exceed 3.0.

We should be putting in place new fringe starter stock for about $1,000 per square metre ALL UP , not the current loony-tunes $2,500+ per square metre all up on the fringes of Christchurch and about $3,500+ all up on the fringes of Auckland.
So that means the young couple on $100,000 a year is required to pony up with a ridiculous $700,000 to house themselves. In a normal market at 3.0 Median Multiple it would be $300,000.
So that means they are forced to load themselves up with about an ADDITIONAL $400,000 in bubble mortgage debt. Add interest over the mortgage life and there is about another $400,000 … total $800,000.
On a gross household income basis, that’s about 8 years of their working lives … net of tax 10+ years.
The young people are unnecessarily “mortgage slaves” because of Local Government incompetence.
And as John Bolton points out, hitting the parents up for financial support (tough luck about the unnecessary erosion of their retirement savings). That’s the kids lucky enough to have parents with the financial wherewithal to do it … tough luck for the kids of parents who cannot financially support them.
After Labour created the problem, by negligently allowing the housing bubble to inflate 2002 , National won the election in 2008, in part, because it promised in the lead up to deal with the issue.
It is oow … some 5 years later … the Government is finally starting to address the problem.
For financial stability reasons, the Reserve Bank reluctantly had to act, because the Government has been so dilatory in dealing with this hugely important housing  structural supply issue. This country simply cannot afford to have a bubble on top of a bubble.
We need to start seeing those $1,000 per square metre all up new starter homes on the fringes of our metros throughout New Zealand as soon as possible.
Hugh Pavletich.

What do you think of these 2x

What do you think of these 2x properties in the market for first home buyers?

haw haw haw doublegz you do

haw haw haw doublegz you do have a wicked sense of
humour ol' boy !!! banking cohorts would just love you !!
I can see the $$$$$ in their coffers for moi !!! Tally ho ol' chap !

I'd have thought first home

I'd have thought first home buyers would be aiming to get into a better area.

Clampdown on Council

Clampdown on Council development Contributions Announced By Smith and Tremain …
Housing affordability: Council development contributions... |

The Government has announced an overhaul of council development "contributions" as part of its parcel of measures to improve housing affordability.
Housing Minister Nick Smith and Local Government Minister Chris Tremain said they would restrict the charges developers paid to councils in a bid to lower costs passed on to home buyers.
"We are going to narrow the charges councils can put on new sections, provide an independent objections process and encourage direct provision of necessary infrastructure to get costs down," they said………. Read more via hyperlink above ….

Hugh Pavletich

You have all well and truly

You have all well and truly missed the boat  - first home buyers included.
Welcome to the new normal:
$50 million record price tag tipped for palatial Paritai Drive property at centre of Hanover legal dispute

Hotchin had planned to live in the Paritai Drive property nearing completion
but says he can't afford to now
. One of the country's most lavish and controversial mansions is up for sale, with expectations that the price could set the record for a single property.
Real estate agent Graham Wall is seeking offers for the palatial Paritai Drive home partly financed by embattled businessman and Hanover co-founder Mark Hotchin.
The house became a lightning rod for investor anger after the finance company's collapse in 2008 and some of the proceeds from its sale could still be subject to the outcome of a courtroom battle involving Mr Hotchin, one of his family trusts and the Financial Markets Authority.


A win for the eastern suburbs

A win for the eastern suburbs at the end after all

BigDaddy - serious question -

BigDaddy - serious question - do you really think prices are going to keep inflating at 10-15% per annum over the next few years in Auckland?
Do you think there is any chance of a crash?
Or are you adamant it is onwards and upwards without pause? 

Just been to my first house

Just been to my first house auction,and after observing it for over an hour i would have to say that real estate agents and over enthusiastic buyers are the reasons for high prices.
It seemed to me that the auctioneer was always bidding on behalf of the vendor until the reserve was met.
What would happen if the buyers weren't dragged up by this behaviour?Houses would become more affordable.This is only an observation i could be wrong.

Correct - greed!

Correct - greed!

Yes it was pointed out to me

Yes it was pointed out to me the other day, and from my experience it seems to be true that real estate agents tell their vendors they could get a certain price, but tell buyers something else so maybe $100,000 less than what they've told the vendor. This means they are seen to be doing a really great job by having plenty of interest at an auction. At the auction, then the buyers and seller eventually meets in the middle. I was given an indicative price on 3 different properties and they all sold $75,000 to $100,000 over what the agent indicated. I would have been very interested to know what the agent had told the vendor. What I can't get my head around is how first home buyers who need to get valuations in order to get finance can compete with those who don't need to worry about this ie. cash buyers. If a property goes for over $75,000 above the valuation then essentially you need to find an extra $75,000? Where is a first home buyer going to find that?

They do not need a valuation

They do not need a valuation to bid at an  auction for finance, the auction price is deemed market value, they just max out loan approval levels based on servicing ability only. It matters not one bit if you pay a premium at auction...

Not true. A condition of our

Not true. A condition of our finance preapproval is that the amount of money we can borrow needs to be less than a certain percentage of the property's market value, and the bank must approve the registered valuer. I have been advised that if the auction price goes over the registered valuation then we need to meet the difference between auction price and registered valuation. It would make sense that auction sale price is market value, but the way it works for first home buyers with less than 20% deposit doesn't work that way.

So the auction begins and

So the auction begins and bidding proceeds and the pre-approved buyer particpates until the bidding fizzles out at the pre-approved buyers upside limit and bidding is down to $100 increments, and at that point, the cashed-up guy, over in the corner, leaning up against the wall, who has remained out of the bidding until now, steps up with a knock-em out-of-the-water, killer bid, $100,000 higher, and the poor pre-approved doofus stands there with his jaw down round his ankles.

This is not the case for all

This is not the case for all first home buyers with low deposits, you are at a distinct disadvantage. Shopped around?

Correct. Although the auction

Although the auction can be over in a flash, it is as important as the srum (and must be thought through and planned to the last detail by you). Remember everyone you see in the room is working for the vendor/themselves, and in the end paid by you and your finance.
The Weekend Herald can reveal the year's worst cases of real estate agents who broke the rules of their profession and misled the public. Property editor Anne Gibson reports
so as property prices ever up, the commission% become larger $ numbers, prompting some to really reach out...

I don't really want to go

I don't really want to go into details, but yes we have shopped around and this particular lender has provided the best offer so far. We were basically advised by the bank to look for situations where the vendor is struggling to sell or needs a quick sale ie. the properties no-one else wants.  Auctions are a waste of time for us because we would spend thousands on valuations and builders reports and get left behind every time. 

It won't always be the way it

It won't always be the way it is now, espcially in Auckland, everything that has a beginning has an end.

And for every ending there is

And for every ending there is a new beginning.

Very true!

Very true!

nice piece by Bromhead

nice piece by Bromhead today:
I know the Chinese are supposed to be astute business people, but I'm not always convinced.
talking to a colleague today who showed me a case here in Adelaide, A chinese investor bought a large block of land down south for $5 million in 2008, sold it for about $2 million a year ago.  
Apparently he hadn't factored in that half the land was essentially undevelopable because of slope. I encountered similar stories whilst in Auckland.  
Anecdotally through a mate in Auckland who is an RE agent I 've heard of at 3 offshore Asian buyers in Auckland paying way too much for leaky dungers, unaware of the leaky issue. They are going to get a nasty shock at some stage

I reckon, foreign buyers may

I reckon, foreign buyers may have bailed us out of a $20billion dollar leaky home problem that the government and Auckland Council would have had to eventually fork out. But since these foreigners have indiscriminately bought and paid huge prices in auction, there is no clawback or remedies under the usual Sale and Purchase contracts. We have dodged a massive repair bill. Thank our lucky stars I reckon.

I personally know of one

I personally know of one couple who dodged the monolithic leaky house bullet thanks to a winning Asian bidder, who probably paid the full market value of properly sealed house for a cavity free one, as well as another couple, now overseas, who have sold a sliding foundation house (North Shore clay hillside), which would have cost at least $100k to permanently fix, to an Asian family for about $80 grand more than they paid for the house just 7 months earlier, before they discovered the issue.
So yeah. Maybe the Asians are let in so that they pick up the dodgiest, nastiest bits of Auckland housing stock for ridiculous amounts, and in the process they collaterally obtain some non-lemons, too.

Which also of course damages

Which also of course damages NZ's reputation, easily lost, hard to get back.

Could be.   But again, why

Could be.
But again, why does one want an image of a safe global land speculators paradise for NZ, where everyone from around the world can come, gamble, never pay any tax should they win, and walk away anytime they feel like it. What good does that do for the average Kiwi who owns just their own home, sometimes a batch too, or oftentimes not even that.

Only going by the names, but

Only going by the names, but the ones who bought leases on Cornwall park trust land were Asian and taken for a ride.

Redcows:- The story is much

The story is much more complicated than that. Not sure "they were taken for a ride" quite fits the bill. Try doing a full search on the CPTB (cornwall park trust board) and the Rateable Valuations of the properties surrounding Cornwall Park and the court challenges mounted by a number of the local residents, not just asian residents.

The origins of the problem don't begin with those properties. It begins with the explosive prices experienced right across the Auckland isthmus which in turn have influenced the value of all inner city land prices, including leasehold land (which is owned by the lessor, rented by the lessee), which in turn have influenced rate values which finally find their way into ground rents of leasehold land, which of course is based on the rateable values.

I'm not sure if Greenlane is inside the Double Grammar School Zone, but that may have been the overarching trigger that caused the buyers in Maungakiekie Ave to have a brain-snap and buy leasehold instead of freehold, to buy an entry ticket into the highly sought after grammar school zones. (Maungakiekie ave is not too far from where Bernard Hickey had his Epsom property). You need to know why the two asian buyers purchased in the first place. Were they buying (a) new zealand residency (b) back door into australia (c) grammar school zoning (d) money laundering (e) capital gain.
Did they buy sight unseen off a China Based agent with a China based web-site? Or did they buy through one of Barfoot & Thompsons ace chinese sales agents who make up the top 20 of Barfoot's 25 top agents?

If you read through the SERPS (search engine results) you will find it has not only affected recent buyers but also long time residents who have ganged together and taken CPTB through the courts only to lose.

Nothing complex. Just plain

Nothing complex. Just plain and simple greed by the CPTB. Leasehold land is all that is available in China. No one experiences ground rent increases that are levied to the extent that it drives people out of their own homes even in communist China. We argue about  China's disregard for human rights but some of our democratic practices based on unfettered greed is clearly a violation of basic human rights ie driving people from their own homes. Someone should lodge a complaint with Susan Devoy.

A property lawyer has a job

A property lawyer has a job to do and it's more than just the transaction.
First thing they should ask when you bring them the deal is "what actually are you buying"   Simple question that done properly leads to some complex revelations.
Answer for the Greenlane properties should have been.  "What you are wanting to buy is not a freehold property .... which is like this   ---  but rather a leasehold .......which is like that."
That is why you pay them.

You would be surprised how

You would be surprised how very few lawyers understand the ground rent review implications. They do not study the value impact to ground rent increases in their text books. Forecasting the future  is not what lawyers do too well.

ZZ.  Not what I said. 

ZZ.  Not what I said.  Lawyers don't evaluate business risk.  But they do need to tell their clients what the basis of the deal is.  Have they bought a property or just a lease etc.

Regarding a value of a cloud

Regarding a value of a cloud based business that were referred to, which I think was a more interesting topic. It really has little to do with the cloud based solution, as long as it is 'goog' It may as well just be a 'widget' that you are selling. You may have the best cloud based business solution in the world, but it is worth nothing if noone is using it. Yes the cost of entry can be relatively low, but the value comes from a huge amount of marketing that is needed. This is why Xero is valued so highly, becuase they were one of the first kids to the block, and they understand that they need to get market saturation quickly to lock out other players in the future. If they don't get that, then it will be worth a lot less. That is why trademe has such a high value, becuase it is almost impossible for a competitor to setup a competing system with such a high user base.
Cloud based system too are high risk, as the value in them can be wiped if there is a long continued outage, or a hacker gets in and deletes data, and also gets into the backups.

She'll ask for the $75k extra

She'll ask for the $75k extra she needs from her retired People's Liberation Army General grandpa in PRC.