Home loan limit too late
Property Institute CEO Ashley Church says debt- to- income limits on mortgage lending have the “potential to do significant damage to the Auckland housing market and the wider New Zealand economy”. Last week the Reserve Bank proposed that home loans should be limited to five times a person’s annual income. ( About time, too.) Should the idea be adopted ( and it is unlikely it will) it would mean a person earning $ 60,000 a year could borrow no more than $ 300,000.
In a press release, Church says the policy would make the Auckland Housing crisis even worse. He says these things often sound like good ideas until you start thinking through what would happen if they were implemented.
Church’s rationale for opposing the move is that the number of people earning enough to build or buy a home would “dwindle to a trickle”. He claims the policy would create a further barrier to people looking to buy their first home and lead to increased rents.
Church doesn’t explain how he obtained his insight into how this policy would affect the market. And, reading his full press release, you’d think the sky would fall in if people were restricted to borrowing only what they could afford to pay back.
When I got my first mortgage in the UK, I could borrow only three times my income, or 2.5 times my partner’s and my joint income. As lending has been relaxed, property prices have gone sky high. Today, UK borrowers can borrow only 4.5 times their annual income. The sky has not fallen in.
I believe the more people can borrow, the higher property prices will be. Auction bidding stops when people reach the limit imposed by the lender. Restrict what people can pay, and the price comes down to meet the market. It’s economics 101. Unfortunately, the Reserve Bank is just a few years too late to do any good.
Meth mess
Following our feature about the meth testing industry in the Property Report ( June 5), one industry professional writes to highlight an issue in the Real Estate Agents Act.
If a vendor refuses to allow the meth contamination of their home to be disclosed to potential buyers, the agent is required to walk away from the listing and — due to conflicting requirements of the act — may not tell anyone.
Part 10.8 of the act requires an agent to tell people of issues that may be a risk to health and safety. While 9.16 puts confidentiality first.
Agents have to be judge and jury and risk breaching client confidentiality if they warn others of a potential risk.