Highly leveraged investors contributing to housing boom
WELLINGTON: Highly leveraged investors are rushing to buy houses, contributing to an unexpected housing boom, analysis by ASB has revealed.
In April the bank forecast a 6% drop in national house prices this year, in the face of a deteriorating labour market, falling net migration and rental declines.
But it is now expecting house prices to rise 12% in the year to June 2021.
‘‘The turnaround in the fortunes of the housing market since lockdown has been remarkable,’’ ASB senior economist Mike Jones noted in a housing insights note released yesterday.
‘‘We now see prices sustaining their recent momentum, with annual house price inflation tipped at 12% by June of next year.’’
Vittoria Shortt, ASB chief executive, told a transtasman business circle forum on Monday that one of the biggest surprises to come out of Covid had been house price rises.
‘‘For the last quarter they have been up 11%.’’
The very low interest rate environment and ‘‘a big housing shortage’’ was playing through into house price increases.
Ms Shortt said the bank was processing home loan applications at levels not seen since 2017.
‘‘The mix of firsthome owners is much higher than ever before, and that is at an ASB level.
‘‘We are definitely seeing a big swing in home lenders and it’s a big part of the business we are writing.’’
Reserve Bank mortgage lending data shows home lending was up 26% in August alone compared with August last year and it seems firsthome buyers and investors are the main drivers.
Mr Jones noted the share of new lending attributable to firsthome buyers hit a high of 20% in August while lending to investors had also continued to creep up and was now at 21%.
‘‘Lending to existing owneroccupiers still accounts for by far the largest share of mortgage lending, but this share has fallen sharply from 64% to 58% over the past 18 months.’’
And it seems highly leveraged investors are behind much of the investor activity.
In April the Reserve Bank dropped loantovalue ratio restrictions which controlled how much banks could lend to both investors and owneroccupiers with low equity or small deposits.
Mr Jones said that change had given rise to a rush of new lending to more highly leveraged borrowers with growth in new lending to the highLVR investor segment for the three months to August up 134%.
For investors, high LVR means they are borrowing more than 70% of the value of the property, while for owneroccupiers it means borrowing over 80% of the value of the property.
The activity has already caught the eye of the Reserve Bank governor Adrian Orr.
Mr Orr said during an online INFINZ conference on Wednes
day that it would become worried about financial stability when house price rises were being driven by very highly leveraged loans and investors rather than households.
‘‘We are seeing early signs of both of those.’’
Mr Orr said the stocks of highly leveraged loans had come down because of the loan to value ratios it introduced in 2014.
‘‘We took it off because, of course, the banks are now responsible and lending sensibly but we are starting to see the new lending go back into the 70 to 80% ratio and the investor side.’’
Mr Orr said the LVR tool was still available and it could put it back on if needed and it was looking at if it was needed right now. — The New Zealand Herald