Talk of LVRs resurfacing for home mortgages unnecessary

Peter Thompson, Managing Director, Barfoot & Thompson
Talk of LVRs resurfacing for home mortgages unnecessary
By Christmas Peter Thompson anticipates Auckland's average sales price to top $1 million.

By Christmas I anticipate that Barfoot & Thompson will have reported our average sales price for Auckland residential property to have topped $1 million for the first time.

In fact, reporting this landmark may well occur in a few weeks’ time when we release our sales data for October.

September’s average price was only $3055 off hitting that mark and, since then, the market has showed no signs of slowing down.

There is nothing really significant in the average price moving above $1 million, and in fact about a third of all the homes we sell currently are priced above that mark.

However, such numbers are milestones that get noticed, and are naturally commented upon.

What is worthy of note is how quickly the $1 million mark has come into focus again following the dip in the average price to below $950,000 in May, when the effects of the first lockdown were being felt.

At that time no-one was predicting the market recovering anytime soon and the speed of recovery, and the size of the price increases now being recorded, has caught everyone by surprise.

It has led the Governor of the Reserve Bank to issue a word of caution at a recent INFINZ conference, saying the Bank was looking at loan to value restrictions, which were eased in April and were not due for review until April next year.

He gave no indication that he was about to take immediate action. His comments sounded more a note of caution, and a reminder that this action was at his disposal if he felt it was needed.

Whether action is required is debatable.

Inevitably, the focus of his comments was investors, and whether this group is causing the latest price increases.

However, a review of Reserve Bank data for mortgage lending in August challenges this perception and it certainly does not show investors dominating lending, or lending to this group being widely out of line with what it was in August 2019.

In August this year investors borrowed 21.4% of all new mortgages (by value). In August last year it was 18.9%.

The vast majority of borrowings in August this year, at 57.9%, was owner occupiers. 19.8% were first time buyers and 0.9% were borrowing for business reasons.

Reimposing strict loan to value ratios will, as it did previously, seriously impact on first-time buyers, and also make life more challenging for existing home owners who may be seeking to take the next step in terms of their living arrangements.

As Auckland has matured into a relatively large, international city, people are changing their attitudes to what is regard as the ideal home.

Inner city living, apartments, lock-up-and-leave convenience, retirement village living, larger homes, smaller homes, less garden, more modern and low maintenance, access to public transportation and transport corridors, indoor/outdoor living and school zoning are all factors that are becoming more relevant to people than they were a decade ago.

Home owners reacting to these new options are leading to property turnover.

Reintroducing harsh loan-to-value ratios is a blunt instrument that rations mortgages and, in the process, restricts people’s options.

In August, three quarters of the money borrowed was by first time buyers or owner occupiers.

In buying at current prices they were expressing confidence in the future of the housing market and acknowledging the importance property was to their future plans.

If they have the means to meet the repayments, why prevent them getting on with their plans?


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