Mortgage specialist Mike Whittaker and director of Mike Whittaker Mortgages has slammed the Reserve Bank's warning today on increased risk to the financial stability of New Zealand as a nothing more than a strategy to get people to stop buying houses.
The Reserve Bank reported that a sharp downturn in the housing market could "challenge financial stability, given the large exposure of the banking system to the Auckland housing market."
But Whittaker told NZ Adviser
such a downturn could be a few years away yet and the downturn will be slow and small.
"I believe this latest report from the Reserve Bank is their strategy to get people to stop buying houses," says Whittaker. "Good luck with that."
Reserve Bank governor Graeme Wheeler
said today when releasing the Bank’s November Financial Stability Report, “House price growth in Auckland has increased strongly with house price-to-income ratios in the region now comparable to those seen in some of the world’s most expensive cities. Rising investor activity has been an important driver of price developments, and international evidence suggests that investor loans have a higher tendency to default in the event of a major downturn in the housing market."
Whittaker says, "We are already seeing that the market has slowed down and prices are levelling out, but this is hardly a shock. This is the market naturally correcting itself and nothing to be alarmed about.
"If houses prices fall, they will fall slowly and not more than 20%, if that. We won’t see a drastic fall in prices as there is so much wealth in the 70+ age group and all this money is filtering down to their families, who typically choose to invest it in property."
The Reserve Bank report also mentioned the expected effects of the loan-to-value ratio (LVR) policy of no more than 70% for Auckland investors that came into play on the 1 November.
"New rules requiring most loans to property investors in the Auckland region to have a loan-to-value ratio (LVR) of no more than 70% came into force on 1 November, following consultation on the proposed measures. This policy, along with recently enacted tax changes and initiatives to increase housing supply, is expected to help moderate pressure on Auckland house prices," the report stated.
But Whittaker told NZ Adviser
it won't have the impact the Reserve Bank is seeking.
"It will not slow house prices at all, it just widens the gap between people who already own property and people who are trying to get on the property ladder.
"It’s a matter of supply and demand. To stop house prices rising, we need to find ways to control how many people are moving to Auckland and build more houses. I am currently building a house and it has taken 14 months to start. There are not enough skilled people in the industry and this is a huge part of the problem.
"People who already own property are doing fine and their spending habits have not changed. It’s the lower-to-average income earners who are struggling. It’s a lot harder to get money and they can’t borrow enough to buy their first home due to the increase in personal expense requirements from the banks (and prices haven’t gone up for years).
Outside Auckland, the limit on the maximum share of lending at LVRs above 80 percent was increased from 10 percent to 15 percent from 1 November and the Reserve Bank stated it will keep monitoring develpments in the regional markets, particularly following "the recent lift in house sales and house price inflation in some upper North Island areas such as Hamilton and Tauranga".