An interesting change is happening in the aggregate lending figures from the RBNZ. Investors were overtaken by first-home buyers in terms of the volume lent over the past few years. However, they are back.
Over the past few months, investor borrowing levels have been approaching parity with first-home buyers.
So, are borrowing levels taking off?
Not quite yet. The housing market is showing some recent signs of confidence, with auction clearance rates up slightly. Investors are still only testing the waters, I feel. However, in Auckland, it is now becoming more difficult to secure a property with a lawn, even in traditionally rental-heavy areas.
What’s driving the change?
Of course, interest rates make owning an investment more attractive. The major changes in tax rules and tenancy laws are having a less direct impact. I feel “mum and dad” investors will take longer to take notice of these changes. Lending laws (CCCFA) have been relaxed, but banks are driven by internal culture, so this will also take a few months to settle in. The banks’ test rates are only now starting to drop and have lagged behind actual fixed interest rates quite a bit.
Will the housing market take off?
On the horizon, we also have the RBNZ with a new tool in its arsenal: the DTI (debt-to-income ratio), which sets an upper cap on how much you can borrow. Although the rules are in play, the banks’ own appetite currently falls short of this cap. However, as servicing test rates drop, we may see this cap introduce some headwinds to growth.
Interestingly, in my opinion, there might be a surge in house prices followed by a stable period as the cap gets hit. However, not all towns and types of houses will face the same limitations. Building houses is exempt, so we may see more competition in this segment as clients try to expand their asset base within DTI limits. We may also see clients from larger regions looking at smaller towns as their DTI cap only allows for smaller purchases.
Cash flow levels or the ability to generate secondary income from a property might also become popular.
