New changes to credit rules to give first-time home buyers access to a weak real estate market
New real estate data shows home values are falling across most of the country – but this week’s proposed changes to bank lending rules could slow the fall further.
The government is set to publish draft changes to lending rules that remove the short-lived requirement for banks and other mortgage lenders to review every purchase of coffee and Bunnings on borrowers’ bank statements.
After consultation with the financial sector, Trade Minister David Clark will publish an exposure draft on changes to responsible lending rules, to limit unintended consequences caused by Credit Agreements and Consumer Credit Act .
The changes had been blamed for causing a sudden slowdown in lending, making it harder than ever for first-time buyers to enter the market this summer. This is despite new nationwide sales settlement figures showing the property market has weakened further, according to CoreLogic analysis released today.
Its house price index shows values fell in March, compared to the previous month, in the cities of Hamilton (-0.9%), Upper Hutt (-2.0%), Wellington (-0.8 %), Christchurch (-0.2%) and Dunedin. (-1.3 percent).
The decline was less marked in the provincial centres, where the largest falls were Rotorua (-2.1%) and Hastings (-0.4%).
Month on month, values continued to rise in Auckland (1.4%), Tauranga (0.6%), Gisborne (3.5%), Whanganui (1.5%) and above all , Queenstown – up a massive 11.3% to average $1,684,142, to pull well ahead of Auckland.
This week’s exposure draft is also expected to remove regular “savings” and “investments” as examples of expenses lenders should investigate, and clarify that the requirement to obtain “sufficiently detailed” information concerns only the information provided directly by the borrowers. rather than referring to information from bank transaction records.
“The Credit Agreement Act will soon be relaxed and banks are well below loan-to-value limits, so have some breathing room to reopen. We are now hearing that pre-approvals are being reviewed again.”
–Nick Goodall, CoreLogic
CoreLogic NZ head of research Nick Goodall said the trend in other major urban areas was slightly mixed and inconsistent from month to month – a clear sign of change. The Queenstown market looked very volatile as trading dried up, but some selling still performed well.
“Much of the concern about future vulnerability relates to the equity situation and the ability of recent homebuyers, and especially first-time homebuyers, to pay higher mortgage repayments,” Goodall said.
“Interest rate increases over the past nine months are a major reason for this, with most terms now more than 1.5 percentage points above their low point. Anyone who is trading this in their budget might consider $40 more per fortnight for every $100,000 of debt he repairs.”
He pointed to new analysis from the Reserve Bank of Australia showing that first-time home buyers were at greater risk than other buyers due to their low capital, but this cohort showed lower mortgage arrears rates. over time. Their ability to withstand an economic downturn was greater because they had better job security and faster future earning potential. “This analysis is likely to be just as applicable to the New Zealand market as it is to Australia,” he said.
“If unemployment stays as low as it is now, the likelihood of motivated or forced selling should remain low, which will help guard against a severe downturn.
“There’s less fear of missing out and more fear of overpaying. Regardless of rule changes, shoppers are holding back.”
– Tony Alexander, economist
“We have already seen a significant drop in loans granted due to the tightening of loan-to-value ratio limits, in addition to changes to the law on credit agreements and consumer credit.
“But credit contract law will soon be relaxed and banks are well over loan-to-value limits, so have some leeway to reopen. We are now hearing that pre-approvals are being reviewed again and banks have also started easing their self-imposed debt-to-income caps, so maybe we’ll consider the first quarter of 2022 the tightest it’s ever had.”
Economist Tony Alexander’s survey of estate agents, released today, indicates that the promised easing of credit constraints is not yet having much of an impact on sales. “There’s less fear of missing out and more fear of overpaying,” says Alexander. “Regardless of the rule changes, buyers are holding back.”