There has been a lot of publicity lately about the slowing housing market, particularly in Auckland. Commentators generally credit the introduction of the of the Reserve Bank’s investment property LVR rules in October 2016 as the main reason. While there is no doubt that this has had a major impact there has also been a noticeable tightening of the credit rules that banks apply when assessing your ability to borrow for a home loan. It is likely in our view that this has also had a significant contribution to the slow down.
A quick tally up of the notices we get as Brokers, shows that there have been more than 10 significant changes to bank home loan credit policy since October 2016. Generally, the banks do not publicise these changes and consumers only find out about them when they apply for a home loan. Often these changes can result in a home loan being declined whereas 12 months ago the home loan may have been approved.
Some of the changes include:
- The banks are being more stringent on how they assess your income, especially if it’s not guaranteed, for example commission or bonuses.
- How the banks calculate your general household expenses which they then use to determine your ability to service a loan. Banks are generally assessing household expenses at a higher level than previously, which is then likely to reduce the amount each household can borrow
- Increasing the base interest rate that banks use when assessing your ability to borrow. Wisely, banks add a margin to the current interest rates to allow for a potential increase in interest rates. This margin stress tests your ability to repay the loan under a higher interest rate. These rates have increased but each bank is different in the margin they actually apply.
Importantly, and as we have mentioned each Bank has made its own changes and they have not all made the same tweaks to their credit policies.
Other factors impacting on the slowing property market include the election as investors wait to see who will govern and what policies they may bring in that may affect the viability of rental investments in particular.
So, is this the start of a big price correction?
At Eightfold we don’t believe so. There is still fundamentally a supply issue in Auckland, not enough properties for those who need them. This being the case it seems unlikely that there will be a major correction anytime soon. It is more likely that we will see smaller increases or decreases in value rather than the rampant inflation of house prices we have seen in recent years.
What does that mean for you? Is now still a good time to buy?
The key to buying property is to have a long term view. Auckland property has historically doubled in value approximately every 12 years. So even if you purchased now and experienced a small decrease in value, in the medium to long term the value of your property is likely to increase.
Navigating financing your property has certainly got a little more tricky and a bit more time consuming, however you can take the hassle out of it by contacting an Eightfold Financial Services Group advisor for a free no obligation chat. It is our job to keep abreast of the changes and understand the best way for our customers to finance or refinance their property.
To get in touch, give us a call on 0800 881 886 or visit our website, www.eightfold.co.nz