17 December 2019
What the RBNZ changes mean for first home buyers
On Thursday 5 December, the RBNZ confirmed the big four Australian-owned banks – ANZ, ASB, BNZ, and Westpac – will be forced to raise an additional $20 billion, to meet the new minimum capital levels. Smaller banks, Kiwibank, SBS, TSB and the Co-op Bank will also need to hold a minimum of 16 per cent of capital on their books.
The media hype surrounding the announcement has been swift and – for lack of a better term –negative, with first home buyers wondering if it will influence housing affordability. To help you understand what impact the new changes will have on interest rates, we’ve investigated the proposed changes.
The RBNZ announcement
The RBNZ has made four announcements leading into the last quarter of 2019. The latest announcement has been the most hyped due to the ramifications it will have on interest rates.
The proposal was initially brought forward in 2017 and has since undergone changes, focusing on a capital review and how New Zealand’s financial system would cope in another financial crisis.
Why? Well the goal is to place the banks in a stronger financial position to withstand a one-in-200-year financial crisis and protect depositors’ money.
How will this affect mortgages?
The RBNZ has been quoted saying it believes the decision will raise borrowing rates, but not by much. The estimated changes could increase borrowing rates by around 20 base points. In layman terms (and using a real-world example), if you borrowed $100,000 for your mortgage over 30 years, at the current 3.45 per cent two-year rate, your repayments will rise $5 per fortnight. The new requirements aren’t going to be in play until July 2020 and will take seven years to take full effect, so there’s a nice time period for banks to bridge the gap.
Affordability for first home buyers
Over the last year, housing has become more accessible for first home buyers - but how has this happened?
- Loosening of the LVR. Under the new bank regulations there is a possibility for further relaxation in the LVR rules. This will mean more people will meet the lower interest rate threshold, which will have a direct impact on what first home buyers can afford.
- There are still houses available within the $375,000 – $500,000 threshold, first home buyers want to purchase within. A small look into what’s happening in the current marketplace will show what's on offer.
- All banks use a ‘test’ interest rate to determine whether first home buyers can meet the repayments on the loan. Across the last few months there has been a loosening in the lending requirements and the interest rates a potential homeowner is being tested at. So, if you were unsuccessful in a loan application last year, try again! People with the same income are now able to drive a slightly higher level of borrowing.
Talk to Lugtons
If you’re worried about the impending changes to the Waikato residential property market and what this means for your purchasing power, make sure you contact the Lugtons team today. Our real estate salespeople have the latest information on the current market conditions and are always happy to discuss these with you.