Who comes out worst off ?

Towards the end of 2016 we saw a pretty clear impact from the third iteration of LVR limits, requiring investors around the country to have a 40 per cent deposit to secure a mortgage. Now almost two years on, we’ve accumulated plenty of data to see the types of investors who were hardest hit.

Firstly, it’s important we recognise that all buyers have been impacted by changes (LVR and bank serviceability) in the past few years. Sales volumes are down across the board, so when we look into the percentage changes we can better focus on who has been affected the most.

In Q2 2018, 64 per cent of all multiple property owner purchases nationwide were done so with a mortgage. Before those 40 per cent LVR limits came in it was 71 per cent. This drop is not because cash buyers have flooded the market, but because those mortgaged purchases have been significantly reduced. Investors not requiring a new mortgage for purchase have reduced their activity too, but not by as much as those mortgaged investors.

Considering we’re analysing the impact of changes in lending criteria, we’ll focus on mortgaged investors. To set the scene, in Q2 2018, 24 per cent of all residential sales nationwide went to mortgaged investors, whereas in Q3 2016 it was 28 per cent (and had been around that for the prior three years).

This tells me the reduction in activity has not only been a reaction to tougher lending criteria limiting the ability for investors to secure a mortgage, but also a reduction in the desire of investors to add to their portfolios at a time when yields are super-low and capital gains were slowing.

What we have seen post GFC, over 10 years ago now, has been a significant jump and maintenance of activity from investors with large portfolios (10 or more properties) from the end of 2012, which coincided with the beginning of the growth cycle in Auckland, so they were quick to act when the market took off.

We could link this to investors being among the more savvy types who foresaw the future growth and could also be ones to watch if they start to divest out of the market.

The other major change in activity was investors diversifying their portfolio — so investing in a new area, where they previously didn’t hold any investment property. And though this began before the introduction of stricter LVR rules specifically for investors in Auckland (November 2015), this change accelerated the trend.

In both these cases the group to suffer the most was the investors with only two properties who peaked at a 9.6 per cent share of sales in Q2 2012, but has since dropped to only 6.9 per cent in Q1 2018.

Overall, this tells me the changes have had a measurable impact and illustrates why everyone is so interested in where the RBNZ goes next with them.