The New Zealand Property Investors’ Federation believe there are good and bad points about the Reserve Banks restrictions on low equity loans.
The downside is that some first home buyers and investors will need to alter their plans. It will force some buyers with little equity to lower their housing expectations or delay their purchase. This will reduce demand and is likely to take some heat out of the market.
The positives are that it may save some borrowers from over-borrowing and help keep interest rates lower for longer. This will help many first home buyers and investors who can work within the new rules as well as existing property owners. It will also help exporters as lower interest rates will help the exchange rate to stay low for longer.
“If the powers that be believe that some form of market intervention is required, then this is probably the best first line of attack. It will have an affect on demand and is likely to have the fastest affect on property prices” says NZPIF President Andrew King.
Although there have been many comments saying that the initiative will be unfair to First Home Buyers, there is evidence that they are a large part of increased demand for property.
In the year ended March 2013 there were 76,122 property sales, 11,122 more than the year before. Over the same period, 11,733 first home buyers used Kiwisaver to help them with their deposit.
First Home Buyers are a dominant factor in increased demand for property and therefore have a large part to play in any house price increases. The Reserve Banks decision not to exclude them from low equity loan restrictions appears to back this up.