11 Nov 2014

Loan limits may ease 'within weeks'

6:27 am on 11 November 2014

Analysts are picking restrictions on low-deposit mortgages to be lifted within weeks, but real estate agents warn it could once again take the brakes off Auckland's heated housing market.

Auckland construction

New houses being built in a Mt Wellington subdivision. Photo: PHOTO NZ

The Reserve Bank introduced the loan-to-value-ratio (LVR) restrictions a year ago, limiting low deposit lending to no more than 10 percent of new mortgages.

Finance Minister Bill English said yesterday the restrictions were always supposed to be a temporary measure and the housing market was now better balanced. "it's really just a matter of the way they're going to be relaxed and when that's going to happen," he said.

ANZ chief economist Cameron Bagrie said he believed the Reserve Bank could announce in its six-monthly financial stability report tomorrow that it is easing restrictions.

"I would not be surprised to see an announcement on Wednesday. Now, loan-to-value restrictions might be wound back a little bit pre-Christmas, because you'd expect to have about a four-week lead time towards implementation."

The chief executive of the Real Estate Institute, Helen O'Sullivan, said the sooner the restrictions were eased, the better.

Ms O'Sullivan said they did not have much effect on house prices in Auckland. Instead, they squeezed the number of entry-level houses for sale - so easing the restrictions might have the opposite effect.

"We would expect it to have more of an impact on volumes than we would on prices, and a positive effect on volumes at that."

Ms O'Sullivan said capital valuations announced by Auckland Council yesterday, with average increases of 29 percent, would not have much effect on future house prices or sales.

"They should be reflecting what's happening in the market, rather than driving it."

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Managing director of Auckland real estate agency Barfoot and Thompson, Peter Thompson, said the restrictions had pushed some first-home buyers out of Auckland's market.

However, he said that hadn't necessarily been a bad thing, as it had prevented people from over-mortgaging themselves.

He was expecting the restrictions to be eased, rather than lifted entirely, but said that could heat up Auckland house prices again as more people try to enter the market.

"Our biggest issue ... is the restriction of the number of listings that's coming onto the market. So when there's a limited supply but plenty of demand it does tend to push the average sale price up.

"So reluctantly I'd have to say that the price could go upwards if there's limited supply."

But Cameron Bagrie did not see that situation lasting.

"That supply side response I think's going to start to move, and when we see start to that supply side response start to come online that market's going to come back into balance - and I find it reasonably difficult to entertain the thought that the Auckland property market is going to keep going up through the stratosphere."

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