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Financial Stability Report - May 2017

May 31st, 2017.

This morning the Reserve Bank has released its latest Financial Stability Report. This is released twice a year and has previously been the platform which the RBNZ has used to announce measures such as some of the previous LVR restrictions.

They have pushed again for the requirement in their opinion of having available a Debt to Income tool which has been discussed at length over the last couple of years but was put on the backburner by the National Party when John Key resigned and Bill English moved from his Finance Minister position into his current role as Prime Minister.

An excerpt from the initial media release from the RBNZ is copied below.

“Banks have generally tightened credit conditions in light of funding constraints and the increasing risks around housing. Banks are seeking to reduce their reliance on offshore funding and have raised deposit rates. The Reserve Bank supports a cautious approach to managing foreign debt, in light of lessons learned in the GFC.

“While the LVR restrictions have increased the banks’ resilience to any fall in house prices, a significant share of housing loans are being made at high debt-to-income (DTI) ratios. Such borrowers tend to be more vulnerable to any increase in interest rates or declines in income. The Reserve Bank will soon release a consultation paper proposing the addition of DTI restrictions to our macro-prudential toolkit.

Information the RBNZ released last week showed that Bank funding for property investment in April was down almost 50% on the equivalent month last year. While lending in all categories are down it is definitely the investment class which is most affected with first home buyer funding and other owner occupied funding being down circa 20%.

Note though while this may sound negative there is still a lot of opportunity around. Treasury still has house prices rising over the next couple of years on the back of continued strong migration and the time it is taking for supply to catch up.

We have had a number of our more experienced investors get back into the market with the opportunities that are being created by some negative media sentiment and low auction clearance results. We have funded a number of deals recently where properties have been purchased at 2014 levels so while there is unlikely to be the rampant capital growth there are a lot more chances to purchase well beneath market value.

Contact us today if you would like to know more information about how the current market may effect your financial position.

 

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Kris Pedersen Mortgages Limited

+64 9 486 4719
info@krispedersen.co.nz
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Takapuna Office
 
388 Lake Road
Takapuna
Auckland 0622
Newmarket Office
 
Level 6
135 Broadway
Newmarket
Auckland 1023
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Takapuna
Auckland 0740