Despite faring better-than-expected throughout the COVID-19 related downturn, New Zealand’s households are grappling with depressed economic growth, unemployment and uncertainty which pervades moods, minds and markets, says mortgage specialist Sue Aitken.
However, she says New Zealand’s residential property market continues to produce outstanding sale results with record mortgage lending in the face of tightened credit conditions and low availability of housing supply.
“Record low interest rates are providing the most important impetus for all buyer demographics in the market right now,” Sue says.
Despite increasing responsible lending obligations and credit constraints, New Zealand’s banks are bringing internal serviceability testing standards down to reflect low long-term mortgage rate assumptions.
Effectively offering more borrowing power to prospective purchasers depending on their level of income, low interest rate directives from the Reserve Bank of New Zealand (RBNZ) continue to support the notion that borrowing from the bank has never been more affordable.
Limits no longer
“While borrowing has never been more affordable, it’s no less complicated despite the RBNZ removing loan-to-value restrictions (LVRs) back in May,” Sue says.
While removing LVR restrictions enables banks to offer a higher proportion of lending to customers with smaller initial deposits, financial institutions remain cautious and the appetite for ‘high-risk’ lending subdued.
Despite this, removing LVR restrictions has offered confidence to eager buyers across the country, with mortgage advisors providing guidance to navigate the temporary removal of restrictions and buyers another reason to act now before limits are reviewed next May.
“Traditionally, the period immediately before and after a general election produces the phenomenon known as ‘mass wait and see’, that is, buyers and sellers alike wait with bated breath to see what effect government policy will have on their financial decisions,” Sue says.
“But, in the absence of transformative policy, 2020 as we have come to expect has bucked the trend once again,” she continues.
With a capital gains tax (CGT) firmly off the table, amendments to the Residential Tenancies Act (RTA) already in place and the spectrum of political parties seemingly unwilling to agitate Kiwi households further after a difficult year, government policy will have little effect on housing market performance this time around.
“Buyers are clearly aware of this, transacting as if the October 17 election is but an ordinary day,” Sue says.
“While much has been made about the 86,000 Kiwis expected to return home to New Zealand from far-away places, market activity has similarly been buoyed by those that never left,” Sue says.
With borders closed and international travel suspended, more Kiwis of all ages are hitting pause on travel plans and putting their money saved to use by injecting it into rewarding bricks and mortar investments such as housing.
Furthermore, those returning home with foreign earnings are purchasing in higher price bands which has led to a spike in property sales over the $1 million mark.
According to August data from the Real Estate Institute of New Zealand (REINZ), last month produced the highest proportion of top-tier sales since records began.
With fiscal support providing further relief by way of recent extensions to the Large-Scale Asset Purchase (LSAP) programme, mortgage deferral scheme and wage subsidies, many New Zealanders are finding themselves in more positive positions than initially expected.
While today’s housing high is undoubtedly helping economic recovery efforts, the mid-term economic outlook is uncertain, as illustrated by the chopping and changing of industry projections.
Looking ahead, there’s a swathe of reasons to be optimistic, the most important of which is underpinned by current market confidence and the record low interest rates which continue to attract buyers to New Zealand’s housing honey pot.