Interest Rate Outlook for November

The property market has certainly picked up over spring, however there is a lot of comment around the LVR restrictions imposed by the Reserve Bank in October 2013, and its effectiveness in dampening the market.

The LVR restrictions imposed were designed to slow the market and reduce the exposure of first home buyers if the market was to fall. In September 2013, 80% + LVR lending accounted for 25% of all lending, and this was expected to climb. The restrictions meant that 80% + LVR lending could not exceed 10% of a lender's total loans. The result is that 80% + LVR lending is now running at 8.4% of total lending.

As a result of the restrictions, those most affected were first home buyers who had trouble raising sufficient deposit to enter the market. This in turn opened the door to property investors as there was less competition for homes in the lower price ranges. Property investors were able to increase their portfolios at the expense of first home buyers.

In the meantime property values have continued to rise bringing into question the Reserve Bank's decision to impose LVR restrictions. However there has until now been a cooling of the market in relation to new listings that may be due to restrictions in the LVR.

There was speculation that the lending restrictions would be relaxed but the in select committee hearing on 11 November 2014, the Reserve Bank Governor said "We have always indicated that the LVR restrictions are a temporary measure. However, there remains a risk of a resurgence in house price inflation, particularly in light of strong immigration flows. Consequently, we do not consider it appropriate to ease the LVR speed limit at this time."

Those returning from overseas or migrating to New Zealand will always create a demand for property in areas of high employment.

It is, as always, a question of supply and demand. This over time will have a levelling effect, and is an effective way in self-regulating the market, rather than Reserve Bank intervention.

Luckily – there are options. If someone has an exemplary history, a saved deposit (including KiwiSaver) and more than enough income to service the debt, then it's likely we can finance them into a home.