2021 was a booming hot market for housing in New Zealand and the house prices increased nearly 30%. It all began in 2020 as the demand in property soared in every region across NZ.
Below are some of the important factors involved in the increase of house prices in 2021.
Demand vs Supply – The limited number of homes available for sale vs the high number of interested buyers.
Historic low mortgage rates – Home loan rates were historically the lowest as some banks offered a 1-year fixed rate at the lowest of 1.99%.
Mortgage lending was easier – Credit was easily available as more people with good average pay could afford to get a higher mortgage for the home they wanted to buy. Pre-approval home loan applications were also on the high.
So, how does the housing market change in 2022?
The market has changed with all the restrictions been implemented by the NZ government and Reserve bank of New Zealand. The result of the restrictions started to show in late November and early December 2021.
In 2022 everyone including investors and first home buyers are seeing the calming down of the housing market as new lending restrictions come into effect.
How did the government and the reserve bank try to bring the house prices down?
It all started with the reserve bank introducing back the LVR loan-to-value ratios for the investors and help get the first home buyers to get into the market. 1st March 2021 the LVR restriction moved to a maximum of 70% for properties that are for investment and later in the year on 1st May 2021, LVR restrictions went up again to the maximum of 60%. LVR restrictions mean more deposit required for investors to buy an investment property. For a 60% LVR the investor would be required to deposit 40% of the total property price at the time of settlement.
Further changes in housing policies were also introduced by the government with bright line test increased to 10 years, phased in removal of interest deductibility for investment properties that were used as rentals. There was also a $3.8 billion infrastructure fund to help boost housing supply.
Then came in the lending changes in October as the Reserve Bank increased the official cash rate from 0.25% to 0.5%, for the very first time since 2014. This change has brought in the rise in interest rate.
Wait that’s not all as in December 2021 changes were made to the Credit Contracts and Consumer Finance Act (CCCFA), which means simply getting a mortgage was no longer a simple process and borrowing any money on the terms of equity in an already serving mortgage, will also become very tough to borrow. More scrutiny is being applied by the banks for any new mortgage borrowers.
2022 is looking very tough for not only investors but also first home buyers who are looking to get into the property market with all these restrictions put in to halt the ever increasing house prices.
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