Even if the Reserve Bank did remove its restrictions on low deposit mortgages it would make little difference to first home buyers, BNZ chief economist Tony Alexander argues.
With Prime Minister Bill English and Labour Party Leader Jacinda Ardern both in election campaign mode, this week they said they'd like to see the Reserve Bank imposed restrictions on banks' high loan-to-value ratio (LVR) residential mortgage lending removed for first home buyers. Both politicians said the LVR restrictions had made it harder for would-be first home buyers to get into the housing market. English and Ardern's comments follow real estate agents, with sales volumes down 25% nationally and 31% in Auckland, lobbying for the LVR restrictions to be loosened.
However, Alexander says based on Core Logic data first home buyers bought 21% of the dwellings sold during the June quarter. This, he points out (see chart below), is the same percentage as just before the LVR restrictions were introduced in October 2013.
"Compared to a year ago when annual dwelling sales were near 95,000, the proportion accounted for by first home buyers was around 20%. So there is no obvious disproportionate fall in sales to first home buyers," says Alexander.
"Note that during the year to April 2017, 15,400 people used the KiwiSaver HomeStart scheme which lets KiwiSaver members access their funds and receive a grant to purchase a first house. There were 85,000 dwelling sales by REINZ members in the year to April."
"HomeStart users therefore accounted for 18% of all sales. Feedback we get suggests that the reasons first home buyers are buying fewer dwellings now than one, two and three years ago is that the house prices are too high and the loans they would need to take out too frighteningly big. Meeting debt servicing requirements from lenders, which are being steadily tightened, also means some cannot qualify for a loan even if they have a 20% deposit," Alexander says.
The July Real Estate Institute of New Zealand figures show a national median sales price of $518,000, meaning a 20% deposit would be $103,600. The Auckland median price was $830,000 for which a 20% deposit would be $166,000.
Alexander points out that it's worth remembering that banks can do up to 10% of their lending with deposits of less than 20%, and suggests a quarter of first home buyers have a deposit of less than 20%. Additionally Alexander says first home buyers account for nearly half all loans with less than a 20% deposit, up from one-third a couple of years ago.
"Therefore, even without debating whether the housing market has slowed enough for the Reserve Bank to make special exemptions for first home buyers, we can reasonably say that LVR rules don’t necessarily seem to be what is holding all of them back."
Thus he says if the Reserve Bank did ease LVR restrictions for first home buyers, it would make little difference.
When the LVR restrictions were introduced in 2013 the Reserve Bank said they were a temporary measure. Governor Graeme Wheeler said; "How long LVR restrictions may remain in place depends on the effectiveness of the measures in restraining the growth in housing lending and house price inflation. LVR limits will be removed if there is evidence of a better balance in the housing market and we are confident that their removal would not lead to a resurgence of housing credit and demand."