New Labour Party leader David Cunliffe says a Labour-led government would "make it clear" to the Reserve Bank that first home buyers must be exempt from restrictions on low equity home loans, and that it should consider targeting specific regions with high house price inflation rather than the whole country.
Under one of the Reserve Bank's recently adopted macro-prudential tools, all trading banks must restrict new residential mortgage lending at loan-to-value ratios (LVRs) of over 80% to no more than 10% of the dollar value of their new housing lending flows from Tuesday, - October 1.
Allowing for exemptions the Reserve Bank estimates this 10% "speed limit" will effectively limit the banks’ high-LVR lending flows to about 15% of their new residential lending, versus the estimated 30% they've been doing.
Banks do, however, have six months to phase in the new restrictions meaning the first test of the LVR restrictions will come at the end of March next year.
Cunliffe maintains the National Party led government has "completely mismanaged" the introduction of residential mortgage lending limits, and failed to consider the impacts on first home buyers or regions where house prices are stagnating. Finance Minister Bill English signed a memorandum of understanding with Reserve Bank Governor Graeme Wheeler in May which paved the way for the central bank to use the tools, including LVR restrictions.
The Government pushed for exemptions from the restrictions to help first home buyers, but ultimately the Reserve Bank didn't grant these.
The Reserve Bank advised English its "speed limit could force around 25%, or 7,000, first home buyers to delay or downsize their home purchase.
According to Cunliffe the Government didn't consider the impacts on first home buyers until a month after the memorandum of understanding was signed with the Reserve Bank. And nor, he says, did the Government consider the impacts on regions.
“Labour will make it clear to the Reserve Bank it must exempt first home buyers when using LVRs and consider targeting those regions where house price inflation is high," said Cunliffe.
“Mortgage lending limits are going to lock thousands of first home-buyers out of the market. Alongside National's failed housing policy, they will create a generation of renters. Labour believes all Kiwis should have a fair chance at the home ownership dream. That dream is disappearing under National."
“Lending limits are National's failed attempt to solve the Auckland housing problem. But it is families in places like Marlborough, where prices are falling, that are being asked to fix it by saving more for a deposit," Cunliffe added.
“Why should a family in the regions have to stump up thousands of dollars more for a deposit to solve the housing problem in Auckland? That’s (Prime Minister) John Key’s job. If he really believes people in the regions think his policy is fair then he is completely out of touch."
'The Government shouldn't interfere'
Speaking on Newstalk ZB Key said although first home buyers would need to save for a longer time to get a home, if double digit annual house price rises continue in Auckland that leaves first home buyers very exposed.
"Because at some point that bubble would burst and they would have borrowed an enormous amount of money against a property that's no longer worth that," said Key.
"Overall, we'll need to let this thing run. The Reserve Bank has the independence to do that and the Government shouldn't interfere on that front," Key added.
"But I'm confident over time the market will actually settle down and hopefully what that will mean for these first home buyers is they'll be getting better value for money when they buy their home.''
'Fixing the twin drivers'
Meanwhile, Cunliffe said Labour would "fix the twin drivers of skyrocketing house prices" being "rampant" property speculation and the shortage of affordable homes.
"We will clamp down on speculators through a capital gains tax and build 100,000 affordable first homes through KiwiBuild," said Cunliffe.
The Reserve Bank has said exempting first home buyers from the LVR restrictions "would significantly undermine" them given first home buyers are a significant proportion of new high-LVR residential mortgage lending.
And the Reserve Bank has also said that in principle, LVR restrictions could be targeted to particular geographic regions such as Auckland. However, use of such "targeted restrictions" isn't currently on the drawing board, with the Reserve Bank labelling geographic targeting as administratively complex, costly for banks to implement, and difficult for the Reserve Bank to monitor and enforce.
Exemptions from the LVR restrictions include;
1) loans made under Housing New Zealand’s Welcome Home Loans scheme;
2) bridging loans;
3) the refinancing of existing high-LVR residential mortgage lending; and
4) the transfer of an existing high-LVR residential mortgage loan to another residential property.
29 Comments
Meanwhile elsewhere Olly Newland is predicting increasing rent prices. This whole situation looks to me like the creation of the perfect conditions and timing to buy a few investment properties using equity gains achieved on exisiting property over the past couple of years. The (Auckland) property you bought for $400k 2-3 years ago is easily worth $500k now. There's your 20% deposit on a new $500k investment property. Waana-be FHB's who we should now more correctly call "Lifetime Renters - LTR's" will be lining up to pay your mortgage for you!
Labour's fighting words would be compelling if they didn't make entirely unbelievable claims like: "we will... build 100,000 affordable first homes through KiwiBuild."
Hmmm......“Labour will make it clear to the Reserve Bank it must exempt first home buyers when using LVRs and consider targeting those regions where house price inflation is high," said Cunliffe.
Well well....that is interesting.....considering targeting house price inflation high areas using LVR's......hmmmm. How many seats would a Labour coalition need in Aukland and Christchurch at the next general election? I bet you are considering that too Mr Cunliffe.
Is this political opportunism , or is it once again , Labour politicians showing utter ignorance of how the free market works?
- As Olly Newland has pointed out , Supply is out of sync with demand , so the price goes up.
- Distorting the market by exempting first time buyers from the rules , leading overindebtedness , defaullts and foreclosures is plain dumb
- Right now there is a land shortage in Auckland , compounded by a left leaning local authority rorting fees in the subdivision process, thus making sections unaffordable .
- Cheap money is already distorting prices , Its cheaper to pay a Kiwibank mortgage at 4,99% on a home than to rent that same home at a market related rent .
- Demand is increasing as South African, Chinese and Indian migrant families are landing at Auckland Airport faster than we can house them.
- Our Immigration policy is skewed towards the skilled and the wealthy migrant , so they arrive with money and they want to buy a home , increasing demand even further.
The suggestion that first time home buyers should be allowed to get themsleves in horrific debt, and place the banking system at risk later is just as silly.
Is this political opportunism , or is it once again , Labour politicians showing utter ignorance of how the free market works?
- As Olly Newland has pointed out , Supply is out of sync with demand , so the price goes up.
- Distorting the market by exempting first time buyers from the rules , leading overindebtedness , defaullts and foreclosures is plain dumb
- Right now there is a land shortage in Auckland , compounded by a left leaning local authority rorting fees in the subdivision process, thus making sections unaffordable .
- Cheap money is already distorting prices , Its cheaper to pay a Kiwibank mortgage at 4,99% on a home than to rent that same home at a market related rent .
- Demand is increasing as South African, Chinese and Indian migrant families are landing at Auckland Airport faster than we can house them.
- Our Immigration policy is skewed towards the skilled and the wealthy migrant , so they arrive with money and they want to buy a home , increasing demand even further.
The suggestion that first time home buyers should be allowed to get themsleves in horrific debt, and place the banking system at risk later is just as silly.
Hi - FHB and first time commenter.
We went unconditional an hour and a half ago. Whew! None of what I'm reading either way is making me feel optimistic for those who have missed out.
The banks are also hiking up the LEM something chronic - we managed to get in before that too, albeit it's gone from 0.6 in April when we first had pre-approval, to 0.9, to 1.25 effective today. Is it just me or does that feel cynical given the restrictions are supposed to ensure they have enough capital?
The banks are also hiking up the LEM something chronic - we managed to get in before that too, albeit it's gone from 0.6 in April when we first had pre-approval, to 0.9, to 1.25 effective today.
Is 65 bps equivalent to numerical looting or not?- I am lending that dosh to the banks in good size - where's my cut since my deposits now carry the risk of equity in the final analysis.
stephen...
I've been giving the OBR some thought...
I think it will have the opposite effect... ie. rather than promoting financial stability ..it will help to create a Bank run...destabilize..
I would be one of the first to withdraw all my money if I thought a Bank was vulnerable..
If people take a haircut on their savings at a bank... yet their mortgage liablities remain the same... there would be outrage and distrust in Banks would spread like wildfire.
The more I think about it .... the more I think it is dangerous idea....
Housing Minister Nick Smith has issued the following press release. It is stuff that has previously been announced.
October 1 changes to help first home buyers
Changes to KiwiSaver and Welcome Home Loans which take effect tomorrow will help first home buyers get into the market, Housing Minister Dr Nick Smith says.
“The changes will help thousands of families with their deposit for their first home and provide a guarantee for their mortgage. The changes will increase eligibility for the schemes, doubling the amount of home buyers receiving the deposit subsidy from 4,700 to 10,000 a year, and trebling the number of Welcome Home Loans available from 845 to 2,500 a year,” he says.
“The changes are needed to make the schemes realistic and fair and ensure Government assistance is targeted at families on modest incomes buying modest homes.
“These changes are particularly significant for Auckland and Christchurch, where the unrealistic house price caps are severely restricting access to the two schemes.
“The $64 million dollar package to support first home buyers, announced in August, includes new regional house price caps and income caps for the two schemes to better reflect today’s market conditions.
“We are also aligning the minimum deposit thresholds of the two schemes to 10 per cent to support the Reserve Bank’s concerns about banks providing too many high loan-to-value ratio loans which threaten the financial stability of the economy. It is also reasonable to expect first home buyers to have saved some funds before getting taxpayer support to buy a home.”
The new regional house price caps for both the KiwiSaver first home deposit subsidy and Welcome Home Loan are $485,000 in Auckland, $425,000 in Wellington City and Queenstown Lakes, $400,000 in Christchurch City and Selwyn District, $350,000 in Thames/Coromandel, Tauranga City, Western Bay of Plenty, Hamilton City, Kapiti Coast, Porirua City, Hutt City, Upper Hutt, Tasman/Nelson, and Waimakariri, and $300,000 for the rest of New Zealand.
The new annual income limits for both schemes are $80,000 before tax for a single person and $120,000 before tax for two or more buyers.
“These changes are just part of the Government’s package of reforms to make housing more affordable. We are tackling the root causes of housing affordability including freeing up land supply, scrutinising building material costs, reforming the RMA, reigning in council development contributions, investing in skills, and cutting compliance costs,” Dr Smith says.
Housing New Zealand, who administers the subsidy and underwrites Welcome Home Loans, has produced a new brochure to show how first home buyers can combine a KiwiSaver deposit subsidy, their KiwiSaver savings and a Welcome Home Loan to buy a home more easily. It is available from http://www.my-first-home.co.nz/ along with more information, case studies and other helpful resources.
Oh great........while I'm doing the compliance of collecting GST, PAYE and the plethora of other regulatory requirements of which I'm unpaid the Government is working out ways to spend it subsidising people who whinge they can't afford a house.
The reason I despise every MP that walks the corridors of Parliament is that you expect one sector called private enterprise to work their butts off to create the employment and collect the taxes you then ignorantly spend.
If Nick smith spent more energy on dealing with the issues that ensure property prices keep going upwards and implemented policies that effected change then more people would on their own merits be in a position to afford a home. Nics the Nanny from Nelson.
Failure to deal with Councils, the RMA and building supplies duopoly means every Politician in Parliament should resign immediately as you are all incompetent.
As far as I can see I would be better off taking the Government and Political parties to court for breaches of the Universal Declaration of Human Rights, the Bill of Rights and other documents that make up the Constitutional framework. Keeping people in servitude has to be as bad or worse than illegal spying on Kim Dotcom.
Cunliffe is absolutely right on the big picture. But does the kneejerk solution.
I think it an absolute disaster that New Zealanders are becoming a nation of renters. It is happening and our nation will be the worse for it.
His solutions however are just attacking the latest National policy. Like "If National is for it we are against it." Pathetic. All I can see here is a vision with a time frame limited to about a week.
New Zealander need to build an investment mentality and become owners. Not just houses, but the farms and businesses. That will take a long recovery where the government and individuals both spend less than they earn.
Government ( might be Cunliffe and Labour if we vote them in) need to be encouraging that. Encourage building, Encourage quality housing with low lifetime cost of ownership. Make it possible for individuals to contribute significant labour to building their own house. Limit ownership to residents. Stop the councils regarding building as a revenue adventure for their overblown bureaucracies.
Ironically it was Labour who failed FHB back in the so-called 'boom' 2001-2007 when they then too did NOTHING! much like the present bunch of Pinocchio's !
Anyone with even half an real economic brain saw the GFC coming from about 2005-6!
So..........NOW Labour wish to claim the high ground?
Politics 101: create a problem and then pretend to offer solutions to that problem!
as reported in the NZ Herald.
http://mobile.nzherald.co.nz/nz/news/article.php?c_id=1&objectid=11132378
This is the bit that I find quite ironic;
"Mr Mongia, an IT consultant was looking at properties in the $400,000 to $500,000 range in south Auckland or Mt Wellington. "If it's good enough I could live in it, otherwise it could be an investment property.""That's right.. if it's a crappy house rent it out! No wonder we have so many Property Investors and slumlords
Whats needed to sort out this kind of rubbish are minimum standards on rental accomodation. We have minimum standards on cars, why not houses? Someone has to pick up the tab for health costs from living in sub standard shoe boxes, why should I subsidise speculators and slumlords via my taxes in this way?
Investment should be removed from the property lexicon. Most landlords are not investors, they are speculators.
No we dont, the tenant is and should be the WOF inspector, if its not good enough they can up and move, really simple.
Cars are complex things that joe public cant inspect and judge plus if they go wrong can kill you and others, fast. If a tenant doesnt think the accomodation is good enough its really easy to move.
Nothing wrong with shoe boxes, some ppl like them, they also mean less to clean, cheaper to heat, cheaper to maintain etc...
regards
Yep I found the whole thing really obsurd and didn't do David cunliffe any favours. Come on, a 23 year old straight out of uni who had managed to already save $50,000! And also could raid the bank of mum and dad if he needed to. And wasn't sure if he was going to live in it or rent it out. This kid has plenty of time and his story isn't newsworthy at all.
What about the many first home buyer wannabe families in their thirties (I know quite a few). These 20 somethings have nothing to worry about. They have kiwisaver first home deposits and interest free student loans. 10 years ago things looked quite different for 23 year olds and it definitely wasn't better.
Elliebelle just wanted to reiterate you're not the only one with the extra LEM interest we took out our mortgage three years ago at only 8% deposit on only my husbands wage and were whacked with an extra 1% on top of the 2 yr fixed rate drawing down one month prior to the Christchurch earthquakes we were royally screwed with the timing paying nearly 7% int when the floating rate dropped well below 5% :-p just roll with it at least your in the game now and on your way! Happily we have made it out to 20% but not without a whole lot of sacrifice
Thanks Mintyfresh. We set our budget based on 3x HHLD income and on an assumption of about 7% interest with LEM, so you're right we just need to roll with it :) (and thank our lucky stars home appliances don't cost as much as they did when my parents bought our family home in '82 - first fridge cost $1000 in those dollars compared to $78k for the house, and that was *just* a fridge - and had to deal with 18% rates!!).
I guess I just don't get the correlation between the LEM and the RBNZ high LVR caps and how this results in them hiking the premium the day before by 0.35 bps. I assume it's linked to insurance costs, but I would have thought with fewer customers in the boat that would reduce the risk... and as previously mentioned see some return for those with deposits for taking on the risks? I really would like a serious explanation if someone's got one?
My view is keep your money in liquid or debt-free hard assets you can control rather than put it into a scheme where you can't access it for 45 years and the rules are subject to change based on the government's whim or need.
That said, you might as well put enough in to qualify for a employee match and tax rebate then use whatever loopholes are available at the time to get it out (house deposit, move overseas etc). Note also that Kiwisaver is also a good substitute for terminal illness cover and funeral cover. You should be saving 25%+ of your income so the 3% into Kiwisaver should be small change.
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