By Gareth Vaughan
The Reserve Bank's restrictions on banks' high loan-to-value ratio (LVR) residential mortgage lending are certainly being felt in the Auckland real estate market with the most obvious evidence a fall in the number of houses selling at auction, says Squirrel Mortgage Brokers' principal John Bolton.
Bolton, whose firm operates in central Auckland, told interest.co.nz in a Double Shot interview the LVR restrictions were definitely having an impact, even at this typically busy pre-Christmas time of year.
"It's definitely changing things. The single biggest thing that I've seen that points to it shifting is auction clearance rates which were running really high and now are potentially below 50%. That's suggesting that things are changing," Bolton said.
His comments come after Barfoot & Thompson, Auckland's biggest real estate firm, said earlier this week the number of houses sold directly at auctions had dropped, without providing specific figures. In September the firm said it was making between 55% and 60% of its Auckland house sales through auctions.
A more subtle change, Bolton said, was anyone trying to buy a property without at least a 20% deposit was having to get a registered valuation, whereas six months ago some banks were waiving the need for valuations all the way up to a 90% LVR.
Another thing that has happened is a lot of would-be first home buyer clients who had been trying to buy for some time, have managed to do so in the past six to eight weeks so long as they've been able to hang on to mortgage pre-approvals from banks scrambling to reduce high LVR lending to meet the Reserve Bank's requirements.
"So that's great. that's seeing our pre-approval pipeline reduce significantly. We're certainly not seeing the same level of pre-approvals that we've seen over the last year to year and a half," said Bolton.
The Reserve Bank introduced high-LVR "speed limits" from October 1, with banks to be measured on them on March 31. They mean banks must restrict lending at LVRs above 80% (where borrowers don't have a deposit of at least 20%) to no more than 10% of total new mortgage lending. This 10% limit excludes high LVR loans made under Housing New Zealand’s Welcome Home Loans scheme, the refinancing of existing high-LVR loans, bridging finance or the transfer of existing high-LVR loans between properties.
'There's no innovation out there'
Bolton said the only way he was seeing first home buyers being able to buy without a 20% deposit was by recruiting their parents' help.
"There really is no innovation out there. You can't put second mortgages behind bank mortgages, there's very little in the way of non-bank lenders in the New Zealand market, just Resimac that's about it and they're pretty small. The only way around the rules is really to involve parents. We're certainly seeing a bit of that," said Bolton.
He is seeing parents provide guarantees, jointly purchase property, take a stake in the property, or provide their kids with early inheritance.
"Parents have become a lot more involved than they were 12 months ago."
"That works in the middle to upper end of the market it doesn't really work in the middle of the market. At the bottom end of the market you've got Welcome Home Loans. So it's kind of that lower to middle part of the market that's missing out at the moment," Bolton added.
Meanwhile, he is watching developments in inner city suburbs such as Westmere with interest.
"If you take Westmere as a classic example, if you went back 18 months it was probably the hardest suburb in Auckland to buy into. There would only be two or three properties listed, they would invariably be going to auction and they would be going for crazy, crazy prices," said Bolton.
"It's an interesting suburb because there's a lot of old houses in there and then there's a lot of really flash done up houses. So it's a classic suburb where builders would go in, renovate them and then sell them for top dollar and make a lot of money. If you look at Westmere at the moment I think yesterday there were probably about 28 listings and a large number of those listings are failed auctions that are now price by negotiation."
"To me that's just the edge coming off that market. Whereas those properties would have been going out the door at record prices just week in week out, even that market's starting to slow a bit."
Market seen settling down
This is creating some opportunities for property investors, Bolton suggests, although it's a mixed bag for them.
"There's the opportunity to potentially pick up some better buys because there's less competition in the market, there's the potential for properties to maybe fall through the cracks especially at this time of year. So I think there are investors out there at the moment that are maybe starting to sense that there'll be some good opportunities to buy," said Bolton.
"There's a lot of younger investors that are highly geared that are just getting started, and trying to recycle their deposits on properties. I think they will be finding it really difficult. They simply don't have the equity or the cash to continue to buy properties and I think that part of the market's pretty dead."
Looking ahead to the election year of 2014, Bolton said he doesn't expect to see any major change in house prices.
"From what I'm seeing in the last couple of weeks I think the market will just settle down and hopefully we'll just have a reasonably settled market next year. I think that would be good for everyone because if the market did slow down a bit too much then I think you're going to see a lot of political pressure on the Reserve Bank," Bolton said.
"The Reserve Bank certainly won't want to become a political football, and I think they'll also be conscious of the fact that they won't want political parties giving away lots of freebies into the housing market come election."