20 Jul 2016

Loan restrictions just 'speed bump' for investors

9:15 am on 20 July 2016

Property experts are criticising the Reserve Bank's latest attempts to cool the housing market.

House for sale in Upper Hutt.

Photo: RNZ / Alexander Robertson

From September, investors around the country would need to have a 40 percent deposit to qualify for a bank loan, under a proposal from the central bank.

The Reserve Bank said a severe downturn in house prices could have major implications for the banking system, which had 55 percent of its assets secured by residential property.

But Property Institute chief executive Ashley Church said tightening loan-to-value restrictions (LVRs) would barely make a difference.

"Most investors, particularly in the Auckland market who've been involved in the market for any period of time during this boom, will already be sitting at, or approaching, 40 percent equity anyway," he said.

"So it's not going to have the drop dead effect the Reserve Bank might have expected of it. If anything it's going to be a slight speed bump."

Mr Church said the policy's objectives were not clear.

"It's the incremental nature of these changes that gives us reason to believe they're simply not clear on what it is that they want to achieve," he said. "If they were clear back then (in 2013) they would have taken drastic measures."

"Even now, you could argue that if they really believed the rhetoric around this they would have moved to 50 or 60 percent LVRs. The fact they haven't done so indicates they're not entirely sure what the impact of those measures is going to be."

The claim that it protected the banks did not make sense, he said.

He pointed to a recent stress test by the Reserve Bank which showed the banking system could withstand a 55 percent fall in house prices.

09062016 Photo: RNZ/Rebekah Parsons-King. Governor of the Reserve Bank of New Zealand, Graeme Wheeler delievers lastest OCR annoucement.

Reserve Bank Governor Graeme Wheeler proposes extending lending restrictions to try to cool the housing market. Photo: RNZ/Rebekah Parsons-King

Other investors agree.

Shane Allen has more than 30 investment properties and mentors others starting out.

He said it was those people, the first-time property investors, who would bear the brunt of this.

"They're going to make it harder for your general Joe Bloggs who owns their own home and wants to buy one or two investment properties," he said. "It's obviously going to make that a bit more difficult. On a $500,000 property they're going to have to stump up with a $200,000 deposit now."

Mr Allen said it would not have much of an effect on established investors.

Mortgage broker Sue Tierney agreed the loan-to-value restrictions were particularly harsh on first home buyers.

"First home buyers are still out there, but the policies have definitely hurt them, and it's hurt them in a way I'm not so sure the Reserve Bank predicted," she said. "The goal was to dampen the market, and all it did is played into the hands of the foreign buyers by making it easier for foreign buyers because we had [fewer] locals buying properties."

Ms Tierney said restricting foreign investment in residential property would be a simpler way to slow down rapidly rising prices.

Get the RNZ app

for ad-free news and current affairs