LVR Limits may Drive Rents Higher
The New Zealand property market will go through a period of adjustment over the coming weeks and months, as new loan-to-value speed limits are introduced. While restrictions on low-deposit loans are designed to slow down the rate of property growth over time, according to some commentators, we could also see an immediate increase in rents as would-be home owners flood the market.
With LVR changes now in effect, most home buyers will require a 20 percent deposit in order to secure a mortgage. While low-deposit loans are still available, they are now restricted to no more than 10 percent of the dollar value of new housing lending flows. Even though restrictions do not apply to non-bank lenders, the overall proportion of first home buyers in the market is likely to be reduced. In early September, credit agency Veda already reported a spike in mortgage checks for under-28 year olds as people tried to beat the introduction of LVR limits.
According to property commentator Olly Newland in an interview with interest.co.nz, house rents could rise by up to 50 percent in the next 18 months as pressure is placed on the rental market. "If the LVR restrictions bite as we suggested, then I would think from now in the next 12 to 18 months rents could rise anywhere from 20% to 50% depending on what area you are talking about and of course depending on how deep the pockets are of the tenants - which of course means they can’t save as much to buy the house they are trying to buy." said Newland.
While rents have been relatively stable for a few years now, prices in Auckland have increased substantially over the last few months. According to property management firm Crockers, weekly prices for three-bedroom homes were up in 25 out of 30 suburbs over the 2013 winter. Rents in the city were up by an average of 9 percent, with East Coast Bays and Te Atatu rents increasing by 8 percent and 7 percent respectively. If Newland is right, we can expect these figures to go up by a lot more over the coming months.
market hard to predict. Even with fewer first home buyers out there, it does not automatically follow that rental prices will rise. In another likely scenario, the proportion of investor owners will increase, leading to more rental properties available than before the LVR changes. In other words, it is possible that the balance between rental demand and supply will stay the same even with LVR restrictions and fewer first home buyers.
According to Newland himself, LVR limits "may well end up being a damp squib – nothing happens, business as usual". However, even if Newland's rental increase estimates are found to be over exaggerated, rises are likely as the market adjusts to new conditions. Please contact your mortgage broker if you are ready to break free from the rental cycle.