It's been a busy end to the month of May for the NZ property and economic space.
With the Government's new budget announced, the Reserve Bank trying to keep a lid on inflation, and banks starting to offer lower interest rates across the board, let’s dive into the top five major changes shaking up the market:
1. Goodbye First Home Buyers Grant
Kāinga Ora grants were scrapped almost immediately after rumours surfaced through news outlets leading up to the government's Budget announcement on the 30th May. Although it was tough to meet the criteria (regional price caps and income caps), it’s still a blow to those close to buying their first home. Up to $10,000 per individual for a new home and up to $5,000 is now no longer a factor of your house deposit.
If you had a grant approved but haven’t used it yet, you’ve got another six months before it disappears. However, you can still purchase with a 5% deposit through the Kāinga Ora First Home Loan Scheme, which remains unaffected for now.
2. The OCR is still On Hold
The Reserve Bank (RBNZ) has kept the Official Cash Rate (OCR) at 5.5%, which was expected. Here at NZ Mortgages, we are anticipating that the rate will drop towards the end of the year, with banks slowly lowering their offerings.
If your loan is up for renewal soon, consider fixing it for just one year to potentially benefit from lower rates later.
3. LVR Policies eased from 1st July
The RBNZ has eased Loan-to-Value Ratio (LVR) restrictions, reducing the minimum deposit for investors to 30% from 35%. Additionally, banks can now offer high LVR lending (over 80%) to 20% of their lending, up from 15%. This change, effective from 1st July, makes it significantly easier for first home buyers and investors alike. Investors need only a 20% deposit for new builds and 30% for existing properties.
4. Debt-To-Income Ratios (DTIs) in Place:
There has been talk about implementing these for a number of months now. With the Reserve Bank making it official, DTIs over 6 are now limited for owner-occupied properties to 20% of a bank’s lending and DTIs over 7 for investors to another 20%. The purpose of this is to ensure people are not borrowing more than they can realistically afford and stabilise house prices.
What does this mean for my lending?
If you are trying to buy a new home, you cannot get lending that equals more than 6 times your income. If you and your partner make $120,000 combined, it means you cannot borrow more than $720,000. This in reality, is quite a lot of money. It means if you have no other loans, you can purchase a $900,000 home with a deposit of $144,000.
On top of this, the banks still have the ability to lend over this ratio, and can approach this on a case-by-case basis.
This gives banks more discretion to lend responsibly where they see fit - on top of this, most banks have already had such ratios in place when analysing your loan applications.
5. Bright-line Test Reduction for the 2nd July:
The Bright-line test period will reduce from 10 years to 2 years, which comes into effect on the 2nd July. Property investors who have been struggling to keep up with the cost of living and higher interest rates will be relieved as they look to sell their rentals, increasing market stock. New investors have a great opportunity to buy rentals with only a 2-year holding requirement.
If you're a first home buyer, keep an eye on the market after the 1st of July. You will benefit from the increased stock levels, so it’s a good time to get ready to buy.
With these ongoing updates and big changes approaching, it’s best to chat with our team at NZ Mortgages to get the best advice for your situation. For expert guidance, reach out to our team at www.nzmortgages.co.nz or give us a call 7 days a week on 0800 100 300.
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