21 Aug 2013

Bank loan changes likely to have desired effect

3:44 pm on 21 August 2013

Barfoot Thompson in Auckland says new lending rules imposed by the Reserve Bank will force first time buyers to look in cheaper suburbs.

From 1 October, banks will be allowed to have only 10% of new lending tied up with low deposit home loans as the bank tries to cool the housing market.

Barfoot Thompson managing director Peter Thompson said the changes are likely to have the desired effect.

But he said the new rules won't necessarily make it harder for first time buyers to get a house.

Mr Thompson said the reality for first home buyers is they may not be able to afford a house in the suburb they want to live in and have to start looking in areas where house prices are lower.

He said it is an opportunity for first home buyers to learn to stick to their means.

"This is an education process we need to go through," he said.

Mr Thompson said this should begin to bring house prices down in about a year.

He also said first time buyers should also not be tempted to borrow money from non-bank lenders, as interest rates are likely to rise.

The Property Investors Federation said the new lending rules will make purchasing harder for some, but not all, first home buyers.

Federation president Andrew King said some will have to look to buy in a cheaper area.

Mr King said demand still exceeds supply in Auckland and house prices are unlikely to drop.

He said the measures may be a reality check for first home buyers as to what they can afford.

Banks, economists sceptical

Bankers and financial researchers say new Reserve Bank restrictions on low deposit home loans are unlikely to have much effect on soaring house prices.

Professor Laurence Murphy of the University of Auckland said the policy will hurt first-time home buyers without having any effect on property investors or people buying subsequent homes.

He expects that people will simply develop new lending arrangements.

Bankers Association chief executive Kirk Hope said a shortage of housing is the problem, not easy credit.

Further comment

KiwiBank says most banks will lend less than the 10% maximum in the new rules.

Chief executive Paul Brock told Nine to Noon most banks will play it safe.

He said banks have time to determine what limits they will set, but those limits will have buffers built into them.

Mr Brock said KiwiBank will prioritise lending to first home buyers.