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 interest.co.nz 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.