Tough lending restrictions leave first home buyers out of pocket
Banks have already put a pause on low-deposit loan applications for aspiring homebuyers
“Average property in the Auckland market is very close to $900,000 to a $1million. A first home buyer doesn’t have a 20 percent deposit to put forward for that,” says Ishan Sikka, Licensed Sales Consultant at realty firm Century-21, bringing into context the stark reality faced by many first homebuyers as they grapple with the tough lending criteria put in by the Reserve Bank of New Zealand (RBNZ).
Since November 1, banks are only able to lend 10 percent of their new lending to homebuyers wanting to borrow more than 80? percent of a house’s value. These restrictions were brought in by RBNZ to curb house price inflation, with Governor Adrian Orr? calling prices unsustainable in a speech in November.
With these restrictions, banks have already put a pause on low-deposit loan applications for aspiring homebuyers.
Prateek Malhotra, Loan Market Mortgage Adviser says, “Most banks have stopped lending to new clients, although they are doing it for their own customers but even that is restricted to less than 20 percent.”
In November, Kiwibank warned some customers that they will not honour pre-approvals for low deposit home loans, while ANZ, ASB and Westpac have stopped accepting applications from customers from other banks. BNZ announced that it will not lend money to owner-occupiers who do not have at least a 20 percent deposit.
This has meant that many first home buyers have been left out of pocket.
Rupinder Kaur, Director and Licensed Sales Consultant with Century-21 said, “Every time the government introduces any changes, could be interest rates or OCR hike, the market does slow down. It's because people are not sure what’s happening, and they want to take the time to observe everything and then find solution. That’s what’s happening in the market right now. But there are definitely buyers out there in the market.”
Her sentiments were shared by Malhotra who said that there are plenty of home buyers looking to buy but they are being regulated by the restriction placed by banks. He said, “The restrictions have hindered the first home buyers’ ability to borrow money. Banks are lending at less than 20 percent, and not every first-time home buyer can buy with that.
“We have already seen a couple of cases where loans have not been approved or have not been renewed and people don’t know when they’ll be able to come back in the market, and I assume that will have a flow on effect on a lot of other buyers in the market.”
Real Estate agents that Indian Weekender spoke to concurred that first-home buyers do not have the money for a 20 per cent deposit and are choosing to let go off their preferred properties, sometimes in lieu of new builds.
Sikka said, “We had an apartment block where the buyers were super keen to buy, but nobody wanted to put an offer because they were asked for a 20 percent minimum deposit or even more, in some cases. So, if you’re looking at a $700,000 apartment, first home buyers are being asked to put in a $140,000 –first home buyers don’t have that kind of money.”
Brijesh Patel, Associate Salesperson Otahuhu Branch with Barfoot and Thompson said, people still prefer to have their own house but in Auckland, it’s difficult to find a balance between budget and location or area, car parks or even school zones.
“If a buyer’s income is $120,000 and he’s been given a maximum loan approval of $700,000 with a condition that he needs to buy a three-bedroom house, where will he find a house like that in that price,” he asked.
Over the past few months, investors have also been busy in the housing market, selling off old builds in favour of new ones as they look to manage their investments against changes to tax rules.
“Homebuyers are being forced to go for new builds, which means they are in competition with the investor category. Investors are favouring new builds because of the lower period for bright line tests and the interest deductibility that’s allowed,” said Malhotra.
“So, these first home buyer with less than 20 percent deposit, who are being forced to look at new builds, are suddenly in competition with investors who can afford to throw in an extra $20,000 – $30,000 more than the asking price, which throws the first home buyer entirely out of the market,” he added.
Patel said that investors prefer to not buy old properties, like cross-lease or smaller properties, with no sub-division potential, but rather are bargaining for big sections and brand-new properties.
So, how long should the buyers expect this uncertainty to last? Malhotra reassures not for too long.
“It’s a matter of banks readjusting their books. By end of Jan, the restrictions will slightly ease up, and we should see banks relaxing for less than 20 percent deals for existing properties and then it’ll be interesting to see how many enquiries we get from existing buyer and first home buyers.”
Kaur agrees, “I believe in a few weeks or maybe the New Year’s, things should stablise.”
Banks have already put a pause on low-deposit loan applications for aspiring homebuyers
“Average property in the Auckland market is very close to $900,000 to a $1million. A first home buyer doesn’t have a 20 percent deposit to put forward for that,” says Ishan Sikka, Licensed Sales Consultant at...
Banks have already put a pause on low-deposit loan applications for aspiring homebuyers
“Average property in the Auckland market is very close to $900,000 to a $1million. A first home buyer doesn’t have a 20 percent deposit to put forward for that,” says Ishan Sikka, Licensed Sales Consultant at realty firm Century-21, bringing into context the stark reality faced by many first homebuyers as they grapple with the tough lending criteria put in by the Reserve Bank of New Zealand (RBNZ).
Since November 1, banks are only able to lend 10 percent of their new lending to homebuyers wanting to borrow more than 80? percent of a house’s value. These restrictions were brought in by RBNZ to curb house price inflation, with Governor Adrian Orr? calling prices unsustainable in a speech in November.
With these restrictions, banks have already put a pause on low-deposit loan applications for aspiring homebuyers.
Prateek Malhotra, Loan Market Mortgage Adviser says, “Most banks have stopped lending to new clients, although they are doing it for their own customers but even that is restricted to less than 20 percent.”
In November, Kiwibank warned some customers that they will not honour pre-approvals for low deposit home loans, while ANZ, ASB and Westpac have stopped accepting applications from customers from other banks. BNZ announced that it will not lend money to owner-occupiers who do not have at least a 20 percent deposit.
This has meant that many first home buyers have been left out of pocket.
Rupinder Kaur, Director and Licensed Sales Consultant with Century-21 said, “Every time the government introduces any changes, could be interest rates or OCR hike, the market does slow down. It's because people are not sure what’s happening, and they want to take the time to observe everything and then find solution. That’s what’s happening in the market right now. But there are definitely buyers out there in the market.”
Her sentiments were shared by Malhotra who said that there are plenty of home buyers looking to buy but they are being regulated by the restriction placed by banks. He said, “The restrictions have hindered the first home buyers’ ability to borrow money. Banks are lending at less than 20 percent, and not every first-time home buyer can buy with that.
“We have already seen a couple of cases where loans have not been approved or have not been renewed and people don’t know when they’ll be able to come back in the market, and I assume that will have a flow on effect on a lot of other buyers in the market.”
Real Estate agents that Indian Weekender spoke to concurred that first-home buyers do not have the money for a 20 per cent deposit and are choosing to let go off their preferred properties, sometimes in lieu of new builds.
Sikka said, “We had an apartment block where the buyers were super keen to buy, but nobody wanted to put an offer because they were asked for a 20 percent minimum deposit or even more, in some cases. So, if you’re looking at a $700,000 apartment, first home buyers are being asked to put in a $140,000 –first home buyers don’t have that kind of money.”
Brijesh Patel, Associate Salesperson Otahuhu Branch with Barfoot and Thompson said, people still prefer to have their own house but in Auckland, it’s difficult to find a balance between budget and location or area, car parks or even school zones.
“If a buyer’s income is $120,000 and he’s been given a maximum loan approval of $700,000 with a condition that he needs to buy a three-bedroom house, where will he find a house like that in that price,” he asked.
Over the past few months, investors have also been busy in the housing market, selling off old builds in favour of new ones as they look to manage their investments against changes to tax rules.
“Homebuyers are being forced to go for new builds, which means they are in competition with the investor category. Investors are favouring new builds because of the lower period for bright line tests and the interest deductibility that’s allowed,” said Malhotra.
“So, these first home buyer with less than 20 percent deposit, who are being forced to look at new builds, are suddenly in competition with investors who can afford to throw in an extra $20,000 – $30,000 more than the asking price, which throws the first home buyer entirely out of the market,” he added.
Patel said that investors prefer to not buy old properties, like cross-lease or smaller properties, with no sub-division potential, but rather are bargaining for big sections and brand-new properties.
So, how long should the buyers expect this uncertainty to last? Malhotra reassures not for too long.
“It’s a matter of banks readjusting their books. By end of Jan, the restrictions will slightly ease up, and we should see banks relaxing for less than 20 percent deals for existing properties and then it’ll be interesting to see how many enquiries we get from existing buyer and first home buyers.”
Kaur agrees, “I believe in a few weeks or maybe the New Year’s, things should stablise.”
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