Our mortgages and lending update, as the end of 2021 approaches
We’re certainly nearing the end of the year, and many will be looking forward to 2022 as a fresh start from the alert level restrictions we have been dealing with since August. I thought now is the ideal time to both reflect and update you on the big moves in mortgages and lending this year.
What has changed over 2021?
While numerous future updates have been signaled by the Reserve Bank, the biggest change for 2021 came into effect from November 1. This was when banks were required to cut new lending to owner-occupier borrowers who have less than a 20 percent deposit, to just 10 percent of their total new lending.
Even before this, we experienced banks pushing back on deals that they would have normally done, and pushing back on debt-to-income ratios too.
Banks had already been looking carefully at high LVR deals, in some cases, limiting borrowing to an amount based on six times of a borrower’s total income if they didn’t have a 20 percent deposit. If borrowers met the 20 percent deposit threshold, they were only letting them borrow to seven times their total income.
We are finding they do factor in rental and boarder income into that too, but they have already pushed back on some deals that meet all the other criteria.
The start of October saw the Reserve Bank increase the OCR by 0.5%, which has seen interest rates with the major banks starting to increase from their record lows. Latest forecasts suggest the OCR will increase to 1 percent early next year and perhaps eventually to 2 percent in 2023 and 2024. This is a watching brief though, as Westpac are now predicting it could peak at 3%.
With interest rates rising, Westpac economists anticipate that this will slow home price growth across New Zealand, but it certainly isn’t clear yet with house prices hitting record highs in September.
On the investors’ side, in May we saw banks reinstating the requirement for investment properties to have a minimum of 40% equity.
However, this requirement mostly applies to existing houses; investors looking to buy a new build may be able to get a loan for up to 90% of the cost, with only 10% deposit.
This is why many investors may be considering rotating their portfolios, selling up old properties to buy new ones, as reported by Stuff. New properties also mean investors are covered when it comes to the Healthy Homes legislation for rental properties, and the recently announced RMA changes also act as an incentive.
For first home buyers
Despite these big changes, we’ve still been able to help first home buyers make loans that work for them. In fact, the latest data out shows that first home buyers represented 26.4 percent of the property market in the three months ended September, a record high for the group.
Like investors, first home buyers may find new builds to be the way forward, with NZ Adviser reporting on a study that found new builds across the country were cheaper than purchasing existing houses.
However, the November 1 changes are likely to hit first home buyers hard. Some incentives to buy remain in place though, as for most places around New Zealand it’s still cheaper to pay a mortgage than rent.
Remember, mortgages and lending are a personal matter and everyone’s situation is different. As mortgage brokers, we work for you, in your best interests (not the banks’ interest). Our team are available to provide personalised advice for you, just give us a call.