Finance And Property – What Is Happening Right Now

Soaring Housing Market

It is no secret that house prices have risen significantly this year. With historically low interest rates, less available housing stock and greater demand for houses, it is to be expected.

The housing situation has been called a ‘decades-long’ problem by economists. “Senior economist Mark Smith believes changes are “well overdue”, and policy experts and politicians need to come together to fix the housing market problem.” [source]

There have been calls for the Reserve Bank to add housing prices to their monetary policy. They are already making some moves to cool the price hikes by reintroducing LVRs in March 2021.

If you are considering buying or selling property in the near future, then it is a good idea to sit down with a financial adviser like the team here at Mortgage Suite to understand your position and what options are available. Feel free to reach out for a free, no obligation chat.

Changes To First Home Grants?

The Prime Minister has hinted that she may look to change the eligibility criteria for the First Home Loan and First Home Grant schemes. This is because the house price caps are excluding most properties in the major centres.

In Auckland, the scheme can only be used on a house worth less than $650,000 and the cap is $550,000 in Wellington. As house prices are soaring due to the low-interest rates, more and more homes are being excluded from the schemes.

Adern said about the schemes, “Those are a good place for us to look at and say, ‘Are there ways that we can enable more first-home buyers to use those products?” [source]

We’ll keep you up to date as more information comes to light, but this initiative could make the additional support and funding available to more first home buyers.

This could be positive as a number of first home buyers who are frustrated with losing out at auctions are bidding above their approved finance rate or not conducting due diligence before a property purchase. [source]

Bright Line Test Extension?

While investors breathed a sigh of relief that there wasn’t going to be the introduction of a Capital Gains Tax, they still needed to be conscious of bright-line testing.

“The bright-line test currently requires people who sell investment properties within five years of buying them to pay income tax on capital gains. The bright-line was introduced by National at two years, and extended by the coalition in 2018 to five years.” [source]

There is a growing belief that Finance Minister Grant Robertson will be asking the Treasury about an extension of the bright-line test after having asked for the effectiveness of the current model to be reviewed.

If buying an investment property was on your radar, then this is something to consider.

The Financial Market

The major banks are trying to predict whether the OCR will be cut further in 2021 with Westpac believing the rate will go into negative territory at -0.25%, whereas ASB believes the OCR cuts will halt. [source]

As the decision is in the hands of the Reserve Bank, we will need to see how the economy performs in the coming months to decide whether further cuts are needed. Watch this space!

Another financial concept that is being discussed currently is DTIs (Debt to Income ratios). “The RBNZ governor Adrian Orr this week confirmed the central bank wants to introduce controversial debt-to-income ratios to curb excessive lending, and reduce the risks of going into default if they lose income.” [source]

“It comes amid rising pressure on the Reserve Bank to try and cool the housing market, after lowering interest rates, introducing a funding for lending programme, and scrapping LVRs in May.” [source]

As you can see, there are a lot of factors that come into play when considering borrowing for a home loan. That is why it is always best to speak to seek professional advice from a mortgage broker.

Interest Rates

With interest rates so low, we are getting a lot of calls from people who are interested in breaking existing fixed rates on longer terms. Unfortunately, there is no single solution for all. Our recommendation to break or not varies based on each borrowers situation.

One thing we are noticing is that the borrowers looking to break these longer-term rates, took advice directly from the banks. Only a small number went through brokers. We believe that the advice you get at the time of fixing your loans is as important as the rate itself.

Here at Mortgage Suite, we would love to help you understand your financial position and what options are available. Reach out to us today for a free, no-obligation chat.