It’s been an interesting start to 2017 with a much tighter credit market than what we have seen for the majority of the last decade. While the majority of the media has been concentrating on the fact that the market seems to have slowed since the 40% deposit rule introduction I put more down to banks themselves pulling back in regards to their willingness to lend and interest rates moving up.
Over the last 6 months or so there has been a large change where the banks have moved from prioritising the growth of their market share to being more interested in growing margins. This in a lot of ways has been a result in it being harder for them to access capital especially in the wholesale markets.
The majority of banks now have clear pricing differences when lending on investment properties in comparison to owner occupied dwellings and in some cases small fees are now being charged. Obviously this is a big change to what we have got used to with large cash backs, TV’s and holidays being thrown out.
Auckland is going to continue to have supply issues for a long time which will put a floor on how far house prices can come back if there is a correction, as migration continues at record numbers and we simply don’t keep up in regards to new build levels. The gap is only going to widen further with Bank Property Funding Units (which handle mid to large development funding) effectively being shut for business at the moment. Expect to continue to hear about more developments being cancelled moving forward with the lack of available credit being a dominant reason for this.
With the aforementioned PFU’s pulling back demand has increased significantly in the non-bank markets with finance companies having to pick up a lot of the slack. With the majority of these having in comparison access to minute amounts of capital many have run out of funds already or are cherry picking the best low LVR deals. Last week I completed a $1.9m transaction which has taken the best part of the last 6 months to get across the line and which was turned down by circa 10 companies before finding a willing funder. If I had taken the same transaction to the market 12 months ago I have no doubt I could have easily funded it even at an LVR 10% higher than what this was originally settled at.
Keep an eye on what is happening in Australia. Their funding regulator has just put in place restrictions that interest only lending has to be capped at 30% of total new residential mortgage lending and caps around the amount of investment lending that can be done. I recommend keeping an eye on Tony Alexander’s commentary as he has recently been talking about credit becoming harder and harder to get. On that point on the 3rd of May an event coming up which is worth attending is Tony talking with Matthew Gilligan in regards to the economy and property investment.
I have been saying it for a while and in many cases it is now too late but it is worth reviewing your current situation in regards to interest rates, maximising revolving credit facilities and restructuring debt to put yourself in the best possible position.
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