The new housing regulations: do they affect you?

Amy Hamilton Chadwick
The new housing regulations: do they affect you?

Between April and July, there have been several policy and regulation changes that have an impact on buying and selling property, as well as on homeowners’ personal finances.

REDnews spoke to David Boyle, the Group Manager for Investor Education at the Commission for Financial Capability, about the 5 biggest changes, who they affect, and what they might mean for you.

 

LOWER OCR

Who does it affect? Everyone with a savings account or a mortgage. The official cash rate (OCR) is the major factor in setting bank interest rates.

What: The OCR has been lowered by the Reserve Bank, and currently sits at 3.00%.

Why: 4 main reasons: 1) Lower dairy prices. 2) Higher fuel prices. 3) Low inflation. 4) Surprisingly low GDP growth for the March quarter.

In addition, the global economy isn't looking too flash, and cash rates in many comparable countries are extremely low, often below 1%.

When: The OCR is being reviewed again in September, October and December. Predictions are that it is likely to drop again this year.

What does this mean for me? For those who are paying mortgages, Boyle says this could be good news depending on their current mortgage conditions. The change will have a positive effect for people on floating rates. Those on a fixed rate mortgage, in most circumstances, won’t see the effect of the interest rate drop and may need to re-evaluate their current position.

Immediately after the OCR was cut, banks responded with lower rates for savings deposits. So if you're on a fixed income dependent on interest from savings, this means that your income will drop and may affect your day-to-day lifestyle. Banks cut the interest they pay to savers in conjunction with reducing the interest they collect from borrowers.

“It’s unlikely in the current economic environment we will  see the OCR going up anytime soon,” says David Boyle, the Group Manager for Investor Education at the Commission for Financial Capability.

“A change in the OCR is a good trigger to get people to review their personal financial circumstances  – especially for those  who rely on a fixed income from savings and term deposits. Even a small drop in return could affect their overall living standards, depending on their circumstances. “

SEE ALSO: The 5 basics of property investment

 

OUTSIDE AUCKLAND, LENDING RESTRICTIONS EASED

Who does it affect? People planning to buy property outside Auckland.

What: Banks will soon be able to approve more home loans with deposits below 20% - but only outside Auckland. At present they are restricted to offering 10% of all their loans in that higher loan-to-value category. That will increase to 15%.

Why: The Reserve Bank is trying to keep the rampant Auckland housing market under control without penalising the rest of the country.

When: From 1 October.

What does this mean for me? For those who live outside Auckland, Boyle says this will should make it easier to buy a house with a smaller deposit. It may also encourage Aucklanders who currently invest in residential property to consider seeking other types of investments in the future.

If you live in Auckland and you're struggling to buy your first home, this may act as a catalyst to  think about other options, including moving to a different region.

That is something Boyle is seeing already: “There seems to be a trend for our ageing population in Auckland to look at other regions,” that is “to sell their property and go and retire elsewhere, thus unlocking current capital from their Auckland home while prices are high, and buying something less expensive. They can then enjoy the capital they have unlocked and put that towards their retirement lifestyle.”

Pull out quote Regulations

PROPERTY INVESTOR BORROWING RESTRICTED

Who does it affect?  Property investors.

What: Property investors, who want a mortgage to buy property in Auckland, will need to have a deposit of 30%.

Why: This is an attempt by the Reserve Bank to rein in Auckland house prices. This change would slow down the speed at which property investors can use the capital gains on one property to buy the next one.

When: From 1 October.

What does this mean for me? Boyle says if you're a property investor who likes to buy in Auckland and you use deposit recycling as a buying strategy, you're going to have to wait longer to purchase your next property or start looking beyond Auckland.

“The Reserve Bank is mitigating another credit crisis,” he says. “When you've been around as long as I have you know there are times when values go down and when people have borrowed a lot of money their margin [of equity] reduces pretty quickly.”

 

PROPERTY TRADING CRACKDOWN

Who does it affect? Those buying properties (aside from your home) and planning to make money by reselling them within a few years. 

What: If you sell your property within two years of buying it, you will now be expected to pay tax on any profits. A new bright-line test will make it harder to avoid paying a tax on your property profits if you're a trader or speculator. Budget 2015 set aside $74 million for the Inland Revenue to enforce tax obligations, including $29 million specifically for property tax compliance.

Why: This is another effort to “take some of the heat out of Auckland’s housing market” Finance Minister Bill English says. The tax will not apply to your own home or a long-term rental property.

When: From 1 October.

What does this mean for me? If you're buying properties, doing them up and flicking them on, Boyle says you should theoretically already be paying this tax.

If you're a long-term investor but also hoping to make a good capital gain, you'll need to be extra careful that you don't find yourself forced to sell within two years of buying, because your intentions could come under scrutiny from the IR.

For Auckland residents, this could possibly help to stabilise prices and rents.

“The Inland Revenue have been working hard and this clarifies it a lot more,” Boyle says. “For speculators it’s quite clear they need to meet the requirements of the law or suffer the consequences. This may ease a bit of the housing bubble we have here [in Auckland].”

 

KIWISAVER KICKSTART CUT

Who does it affect? People considering signing themselves or their children up for KiwiSaver.

What: The $1,000 KiwiSaver Government kickstart is no longer available.

Why: The aim of the kickstart was to get people to join up to KiwiSaver: reportedly the goal was to have 700,000 members by 2015. It’s been more popular than predicted, with 2.5 million people now enrolled, so this aim has been achieved. Cutting the kickstart now saves the Government $125 million a year.

When: Already in effect. 

What does this mean for you?  Boyle says this will mainly affect children and youth under the age of 18. With no tax member credits, there is no longer any incentive to sign your children up until they reach the age of 18, unless you are looking to start a savings plan for them by making small regular contributions.

He adds, though, KiwiSaver is still a great scheme for adults: “The best way to look at KiwiSaver is as a savings vehicle that allows you to make regular contributions that come out of your pay and is ‘out of sight, out of mind’. It’s generally matched by your employer at 3% and you get a member tax credit matching up to $521 a year. That’s not to be sneezed at: over a long period of time it’s a great contribution to help you enjoy those retirement goals.

"From a pure investment funds perspective, fees are lower generally than most, if not all, retail investment funds and  there’s also the HomeStart package which has been sweetened quite a bit for first home buyers.”

SEE ALSO: The 5 basics of property investment

 

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